Making pension contributions before 6 april 2024

The tax year is drawing to a close, and if you haven’t made the most of your pension planning opportunities, now is the time to act. With 5 April 2024 marking the end of the 2023/24 tax year, there’s a narrow window to make pension contributions and claim valuable tax relief. Whether you’re self-employed, a company director or an employee, understanding how to optimise your pension contributions before the deadline can result in genuine tax savings.

Why pension contributions matter before the tax year end

Pension contributions offer one of the most tax-efficient ways to save for retirement. The key benefit is tax relief: essentially, the government tops up your contributions. For basic rate taxpayers, a £80 contribution costs only £64 out of pocket. For higher rate taxpayers, the saving is even greater. Making contributions before 6 April 2024 means you can claim relief for the 2023/24 tax year, which closes on 5 April 2024.

This isn’t just about the tax relief itself. Regular pension saving also reduces your taxable income, potentially keeping you below tax bands or helping you avoid higher rate tax altogether. For those approaching retirement, it’s also a straightforward way to shelter income while building your pension pot.

How much can you contribute?

The Annual Allowance is currently £60,000 per tax year. This is the maximum amount you can pay into your pension and receive tax relief without triggering the Annual Allowance charge. However, most people don’t hit this limit—and that’s where ‘carry forward’ becomes useful.

If you’ve contributed less than the annual allowance in previous years (going back four years), you can use that unused allowance now. For example, if you’ve used only £40,000 of your £60,000 allowance in each of the past three years, you could potentially contribute an additional £60,000 this year. This is particularly valuable for self-employed people with variable income or business owners experiencing a particularly profitable year.

Remember, the Lifetime Allowance was abolished from 6 April 2023, so you no longer need to worry about exceeding a total pension pot limit.

Self-employed and business owners: acting now

Self-employed individuals and company directors should prioritise pension contributions before the tax year end. For self-employed sole traders, contributions reduce your taxable profit, which directly reduces the income tax you owe and your National Insurance contributions. This double saving makes pensions especially attractive.

For company directors, pension contributions made by the company are a corporation tax deductible expense. If your company is operating at a profit, a well-timed pension contribution can reduce your corporation tax bill while securing your retirement. Contributions must be made (or wholly committed) by 5 April 2024 to count toward this tax year, though some schemes allow a grace period into the following month.

The mechanics of claiming relief

If you’re contributing to a personal pension (including SIPPs and ISAs), basic rate tax relief is added automatically by most providers—your £80 contribution becomes £100. If you’re a higher rate taxpayer, you claim the additional 20% relief via Self Assessment.

For company pensions, the contribution is simply deducted from your company’s taxable profits. The timing is crucial, though. Your accountant will need to know about the contribution before calculating your corporation tax return, so don’t leave it as an afterthought.

If you’re an employee, you may be able to make additional voluntary contributions (AVCs) to your workplace scheme, though you’ll need to confirm this with your scheme provider urgently.

Don’t miss the deadline

The deadline is genuinely immovable. Contributions made on 6 April 2024 or later cannot count toward the 2023/24 tax year, even if you’re claiming relief on your tax return months later. If you’re planning a significant contribution, speak to your pension provider or accountant now to confirm the exact payment date they require.

Tax relief on pensions is one of the few remaining tax breaks available to most people. With just weeks until the tax year closes, it’s worth reviewing whether you’ve made the most of your allowance. Even modest contributions can make a meaningful difference to your retirement pot over time, and the tax relief makes it even more worthwhile.

For tailored advice, contact Severn Accounting — we’re here to help.