The rules can be more generous here as regards the amounts paid into a scheme which will qualify for tax relief. A cap is placed on the size of the fund rather than on annual contributions. Where there has not been any great pension funding in the past these rules can allow very substantial tax allowable payments in the years coming towards retirement. This is generally referred to as “Back Service Provision”.
If your business is earning profits in excess of your salary requirements you need to consider how this surplus income will be invested and treated for tax purposes. If you trade as a sole trader/partnership you will pay normal income tax at the 20%/ 40% rates as applicable. However if you trade as a limited company the profits would be taxable at a 12.5% tax rate which could make it worthwhile to carry on business through a company. It should also be possible for your company to invest greater sums into a pension fund for your benefit and obtain tax relief thereon. The other alternative instead of pension funding is for direct investment by the company. At retirement the company would be liquidated and the funds paid out to in the form of a capital gain and liable for tax at 33%. However it might be possible to receive a substantial amount tax free under the capital gains tax retirement relief rules. This type of arrangement requires detailed planning in advance.