As I’m sure you’re all too aware, the continued lock-down is causing real concern for business owners, with some businesses unlikely to survive the Covid-19 pandemic. The more nimble business owners are flexing their approach where possible and in some cases, fundamentally changing their business model in order to survive.

The Chancellor has offered unprecedented levels support in the form of grants, loans and other measures to help UK businesses weather the storm. The link below will take you through what support is potentially available for you.

https://www.gov.uk/business-coronavirus-support-finder

However, if you are the owner of a limited company, there is another potential option in which you can essentially loan required funds to your company, pay yourself interest, and also reduce your corporation tax bill.

What I am talking about is a feature of occupational pension planning known as loanback – the ability for a pension scheme known as a Small Self-Administered Scheme (SSAS) to make a loan to the associated employer of up to 50% of the net scheme assets.

Example of Loanback

The trustees of Widgit Ltd SSAS (you as trustee) are considering making a loanback to Widgit Ltd (you as company owner). The net asset position of the SSAS is as follows:

Assets Market Value
Investments £350,000
Cash Deposits £150,000
   
Net Assets £500,000
   
50% of net assets £250,000

 

The Widgit Ltd SSAS can therefore lend the company £250,000, assuming that the conditions around loanback can be satisfied. The loanback is simply an investment of the pension scheme.

The interest payable on the loan by the company represents the SSAS trustees’ return. What is more, the interest payable can be deducted from the company’s profits and reduce the corporation tax bill. SSASs potentially have much to offer you, both with respect to saving for retirement and also business planning. However, the loanback feature separates SSASs from other types of pension schemes and could provide a useful stepping stone as part of the wider plan, that could assist in seeing your company through the crisis.

If you are the owner of a limited company, already have pension savings and would like to discuss how SSASs may help your business, please contact your adviser or email us at [email protected]