Log in
Tax ReliefUpdated 2026-10-19

Can my company pay into my pension?

Quick Answer

Yes, and it's one of the most tax-efficient ways to extract money from your company. Employer pension contributions attract full Corporation Tax relief with no Income Tax or NI for you.

Let Finn handle this for you

AccountsOS does your books for you. Ask Finn about your own business, no signup needed.

Detailed Explanation

Company pension contributions for directors

Employer pension contributions are arguably the most tax-efficient benefit available to limited company directors.

Why it's so tax-efficient

| Method | Income Tax | NI (Employee) | NI (Employer) | Corp Tax Relief | |---|---|---|---|---| | Salary | Up to 45% | 8% | 15% | Yes | | Dividends | 10.75-39.35% | None | None | No | | Pension | None | None | None | Yes |

For every £10,000 of company profit: - As salary: ~£5,500 after all taxes - As dividends: ~£7,200 after all taxes - As pension: £10,000 goes directly into your pension (minus Corporation Tax saved)

Annual allowance: £60,000

The maximum tax-relieved pension contribution is £60,000 per year (2026/27). This includes: - Employer contributions - Personal contributions - Contributions from all sources

Carry forward

If you didn't use your full £60,000 in previous years, you can carry forward unused allowance for up to **3 years**. This means you could potentially contribute up to **£240,000** in a single year.

How to make employer contributions

  • **Set up a workplace pension** (if you haven't already)
  • **Board resolution** - minute the decision to make employer contributions
  • **Pay from company bank account** directly to the pension provider
  • **Record as business expense** in your accounts
  • **Include in CT600** as a deductible expense

HMRC's 'wholly and exclusively' test

HMRC can challenge pension contributions that aren't commercially justified. To stay safe: - Contributions should be reasonable relative to the director's role and salary - A one-off large contribution might raise questions - Regular contributions are less likely to be challenged - Document the commercial rationale

What's 'reasonable'?

There's no hard rule, but HMRC is unlikely to challenge: - Contributions up to the annual allowance for directors earning market-rate salary - Contributions that are consistent year to year - Contributions that don't create a trading loss purely for tax avoidance

Practical example

Company profit: £80,000

Strategy: £12,570 salary + £40,000 pension + remainder as dividends

  • Salary cost to company: £13,706 (inc employer NI)
  • Pension contribution: £40,000
  • Corporation Tax on remaining profit: (£80,000 - £13,706 - £40,000) x 19% = £4,996
  • Available for dividends: £21,298

Director receives: - £12,570 salary (tax-free) - £40,000 into pension (tax-free, grows tax-free) - £21,298 dividends (taxed at 10.75% after £500 allowance) - Dividend tax: ~£2,236

Total accessible income: £33,868 (plus £40,000 building in pension) Total personal tax: ~£2,236

When to contribute

- Before company year-end

Maximises Corporation Tax relief for that year - **Before personal tax year end (5 April)

Tapered annual allowance

If your 'adjusted income' exceeds £260,000, the annual allowance tapers down by £1 for every £2 over £260,000, to a minimum of £10,000. This mainly affects directors with very large salaries and dividends combined.

Accessing your pension

  • From age **55** (rising to **57** from 2028)
  • 25% can be taken tax-free as a lump sum
  • Rest is taxed as income (but likely at a lower rate in retirement)
  • Multiple options: drawdown, annuity, or combination

Source: HMRC Employer Pension Contributions Guidance

Real-World Examples

Director withdrawing profits

Sarah, a director, wants to withdraw £20,000 from her company. Choosing a company pension contribution instead of salary or dividends saves her significant Income Tax and National Insurance, while still reducing her company's Corporation Tax bill.

Planning for retirement

John's limited company has had a profitable year. Instead of paying himself a large dividend, he directs £15,000 into his SIPP via employer contributions, benefiting from Corporation Tax relief now, and growing his pension pot tax-free for retirement.

Reducing Corporation Tax

ABC Ltd has profits exceeding £50,000 and wants to reduce its corporation tax bill. By contributing £10,000 to the director's pension, the company reduces its taxable profit by £10,000, saving up to £2,500 in corporation tax (at 25%).

Common Mistakes to Avoid

  • Assuming that pension contributions are limited to the annual allowance when 'carry forward' rules allow unused allowances from the previous three years to be used.
  • Forgetting to account for the 'wholly and exclusively' rule, ensuring contributions are genuinely for remuneration and not disguised profit extraction unrelated to your role.
  • Failing to keep detailed records of pension contributions, including the date and amount, for accurate accounting and HMRC compliance.
  • Ignoring the tapered annual allowance for high earners, which can significantly reduce the amount you can contribute to your pension tax-efficiently.

What is the annual pension allowance for company contributions?

For the 2025/26 and 2026/27 tax years, the annual allowance is £60,000. This is the total amount that can be contributed to your pension each year, including both personal and employer contributions.

What happens if my company pension contributions exceed the annual allowance?

If contributions exceed the annual allowance, you'll face a tax charge. This charge effectively claws back the tax relief you received on the excess contributions, ensuring you're taxed as if you'd taken the money as income.

Can my company contribute to my partner's pension?

Yes, your company can contribute to your partner's pension if they are an employee of the company. However, the 'wholly and exclusively' rule applies, meaning the contribution must be justifiable as part of their remuneration package.

Does contributing to my pension affect my ability to get a mortgage?

Potentially. Lenders assess affordability based on your income after pension contributions. Larger contributions reduce your take-home pay, possibly impacting the mortgage amount you can borrow. Discuss this with your mortgage advisor.

Practical Tips

  • Use a pension calculator to estimate the tax savings from company pension contributions versus salary or dividends, factoring in your personal circumstances.
  • Consult with an independent financial advisor to determine the optimal pension contribution strategy for your retirement goals and overall financial plan.
  • Ensure your company's articles of association allow for employer pension contributions and that they're properly documented in board meeting minutes.
  • Pay pension contributions directly from the company bank account and clearly label them for easy reconciliation during bookkeeping.

Related Questions

How does pension tax relief work for company directors?

Company pension contributions get full Corporation Tax relief with no personal tax. Personal contributions get relief at your marginal rate. Annual allowance is £60,000.

What is the most tax-efficient salary for directors in 2026/27?

The most tax-efficient director's salary in 2026/27 is typically £12,570 (the personal allowance). This uses your full tax-free allowance while keeping NI costs low.

What expenses reduce Corporation Tax?

Most genuine business expenses reduce your Corporation Tax bill, including salaries, rent, utilities, professional fees, travel, equipment, and pension contributions. The expense must be 'wholly and exclusively' for business purposes.

Browse all questions →

Get instant answers to all your accounting questions

AccountsOS uses AI to answer your tax and accounting questions in plain English. Ask Finn, get the figure, keep a human for the hard calls.

Get Started Free

Free for 14 days - No credit card required