Key takeaways
- A limited company can pay into a director's pension as an employer contribution, which is normally an allowable expense for corporation tax.
- Employer pension contributions carry no employer or employee National Insurance and no income tax for the director, unlike salary or dividends.
- At the 25% main rate, a £10,000 employer contribution costs the company £7,500 after corporation tax relief, and all £10,000 goes into the pension.
- The annual allowance is £60,000 in 2026/27, covering company and personal contributions together, with unused allowance carried forward from the previous 3 tax years.
- Employer contributions are not limited to the director's salary, but personal contributions only get tax relief up to 100% of earnings, and dividends are not earnings.
- HMRC deducts contributions in the period they are actually paid, not when accrued in the accounts.
- HMRC accepts contributions for a close company director where the total package is comparable to what an unconnected employee would get for similar work.
A limited company can pay into its director’s pension directly, and HMRC normally treats the payment as a business expense that reduces corporation tax. The contribution is free of National Insurance and is not taxed on the director when paid in. For many owner-managers it is the most tax-efficient way to take value out of the company, within the £60,000 annual allowance for 2026/27.
How do employer pension contributions work for directors?
The company pays straight into a registered pension scheme in the director’s name. It does not go through payroll and is not the director’s income. Money can reach a director’s pension in two ways:
- Employer contribution: paid by the company, deducted from company profits for corporation tax.
- Personal contribution: paid by the director from taxed income, with tax relief added by the scheme or claimed through Self Assessment.
For directors, the employer route usually wins, because it saves corporation tax and avoids National Insurance at the same time.
What is the tax saving?
The company saves corporation tax at 19%, 25% or a marginal rate in between, depending on profits. GOV.UK sets the small profits rate at 19% for profits up to £50,000 and the main rate at 25% above £250,000. There is no employer National Insurance at 15%, no employee NI and no income tax on the director.
Worked example: £10,000 out of the company
A company pays corporation tax at 25%. The director is a higher rate taxpayer who has already used the £500 dividend allowance.
| Route | Cost to company | Director receives |
|---|---|---|
| Employer pension contribution | £7,500 after tax relief | £10,000 in the pension |
| Dividend | £10,000 of pre-tax profit | £4,819 after tax |
For the dividend, the company first pays £2,500 corporation tax, leaving £7,500. Dividend tax at the 2026/27 higher rate of 35.75% takes £2,681, leaving £4,819 in the director’s hands.
The pension is not taxed on the way in, but it will be taxed on the way out. Normally up to a quarter can be taken tax-free from minimum pension age, which rises from 55 to 57 on 6 April 2028, and the rest is taxed as income. Even so, the gap is large. Test your own figures with our pension tax relief calculator and salary vs dividends calculator.
How much can the company pay in?
The limit that matters is the annual allowance, which is £60,000 for 2026/27. It covers company and personal contributions together. Going over it triggers an annual allowance tax charge on the director.
| Limit | 2026/27 figure | Applies to |
|---|---|---|
| Annual allowance | £60,000 | All contributions, from any source |
| Carry forward | Unused allowance from the previous 3 tax years | Must have been a scheme member in those years |
| Tapered allowance | Falls by £1 for every £2 of adjusted income over £260,000, to a minimum of £10,000 | Threshold income over £200,000 |
A lower money purchase annual allowance applies if the director has already flexibly accessed a pension, for example by taking cash from a drawdown fund. Check the current figure with the scheme before making large payments.
Are employer contributions limited to salary?
No. Employer contributions are not capped at the director’s earnings. This matters because many directors take a low salary and the rest as dividends, and dividends do not count as earnings for pension relief.
Personal contributions are different. GOV.UK says tax relief on them is limited to 100% of your earnings in the tax year, or £3,600 gross if you have no earnings. A director on a £12,570 salary could get relief on personal contributions of only up to £12,570 gross, but the company could pay in much more.
Will HMRC allow the deduction?
HMRC normally allows the deduction, but it must pass the “wholly and exclusively” test for the trade. HMRC’s BIM46035 says a contribution forming part of a remuneration package paid for the trade is allowable.
For a director of a close company, HMRC accepts the contribution if the total package (salary, benefits and pension) is comparable to what an unconnected employee would get for work of similar value. Where the package looks excessive, HMRC looks at the whole package, not just the pension, and disallows only the part that is not for the trade.
Contributions for a director’s family member who does little work for the company are the main risk. Keep a note of the director’s duties and the reason for the amount.
When does the company get relief?
Relief is given in the accounting period the contribution is actually paid. HMRC’s BIM46010 says an accrual in the accounts is added back for tax, so pay before the year end if you want relief that year.
Large one-off payments can be spread. Under PTM043400, spreading applies only if contributions are more than 210% of the previous period’s and the excess over 110% is £500,000 or more. Few small companies come near this.
How to make a director pension contribution
- Check the allowance. Add up all contributions already made this tax year and any carry forward available.
- Check company profits and cash. The payment must be affordable and justified as part of the director’s pay.
- Choose the scheme. A self-invested personal pension (SIPP) or the company’s workplace scheme can accept employer contributions.
- Record the decision. A short board minute is good practice.
- Pay from the company bank account before the accounting year end, and book it as an employer pension cost.
What to do now
Review each director’s pay plan before the company’s year end. Our guide to the best way to pay yourself explains how salary, dividends and pension fit together. If you have staff, see employer pension contributions and auto-enrolment for directors. The salary sacrifice cap from 2029 does not affect ordinary employer contributions.
Frequently asked questions
Can my limited company pay into my pension?
Yes. The company can make an employer contribution to a registered pension scheme in your name, and it is normally deductible for corporation tax.
How much can a limited company pay into a director’s pension?
Up to the £60,000 annual allowance for 2026/27, including any personal contributions, plus unused allowance carried forward from the previous 3 tax years.
Do employer pension contributions count against my salary limit?
No. Employer contributions are not limited to your salary. The 100% of earnings limit applies only to personal contributions.
Is National Insurance due on employer pension contributions?
No. Employer contributions to a registered pension scheme are free of employer and employee National Insurance.
When does the company get corporation tax relief?
In the accounting period the contribution is paid. An accrual at the year end does not qualify until the cash is paid.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.
- BIM46035 pension contributions: wholly and exclusively (HMRC Business Income Manual)
- BIM46010 pension contributions: timing of deductions (HMRC Business Income Manual)
- PTM043400 employer contributions: spreading (HMRC Pensions Tax Manual)
- Tax on your private pension: annual allowance (GOV.UK)
- Tax on your private pension: pension tax relief (GOV.UK)
- Tax on dividends (GOV.UK)