Employer pension contributions
A limited company can pay pension contributions for its directors and employees as a business expense, reducing corporation tax with no income tax or National Insurance for the individual. The annual allowance is £60,000.
Also known as: company pension contributions
How it works
Company contributions are one of the few genuinely efficient ways to move money out of a company. The contribution is deductible against profit, so the company saves corporation tax at 19%, 25% or 26.5% in the marginal band, and there is no employer or employee National Insurance and no income tax on the way in.
The limit is the annual allowance of £60,000 across all contributions in a tax year, including personal ones and any employer contributions from other jobs. Unused allowance from the three previous tax years can often be carried forward if you were a pension scheme member in those years. High earners face a tapered allowance, and anyone who has flexibly accessed a pension is restricted by the money purchase annual allowance.
Company contributions must satisfy the wholly and exclusively test, which in practice means total remuneration — salary plus pension — should be commercially justifiable for the work done. For a working director, contributions well beyond salary are usually accepted; for a family member doing little, they are not.
Timing matters because relief follows the accounting period in which the contribution is actually paid, not accrued. A contribution made a day after the year end moves the corporation tax deduction a full year.
Worked example (2026/27)
£20,000 employer contribution from a company in the marginal band
| Contribution paid | £20,000 |
|---|---|
| Corporation tax saved at 26.5% | £5,300 |
| Employer National Insurance | £0 |
| Income tax for the director | £0 on the way in |
Who this affects
- Directors with retained profit and no immediate need for the cash
- Companies in the marginal band, where relief is worth 26.5p in the pound
- Higher earners whose allowance may be tapered
- Directors whose income is near £100,000 and who want to protect the personal allowance
Common mistakes
- Paying the contribution after the year end and losing a year of relief
- Exceeding the annual allowance without checking carry forward
- Making large contributions for a family member with a minimal role
- Paying personally when the company could have paid and saved National Insurance
Frequently asked questions
Are company pension contributions tax deductible?
Yes, as an allowable business expense in the accounting period they are paid, provided they meet the wholly and exclusively test.
How much can my company pay into my pension?
Up to the £60,000 annual allowance, plus any unused allowance carried forward from the previous three tax years, subject to tapering for high earners.
Is it better for the company or me to pay?
Usually the company. A company contribution avoids National Insurance and income tax entirely and gets corporation tax relief, whereas a personal contribution comes from taxed income.
Does a contribution reduce my personal allowance taper?
Personal contributions reduce adjusted net income and can restore personal allowance. Employer contributions do not count as your income in the first place.
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Reviewed by Waqas Sagar ACA FCCA FMAAT · Last reviewed 13 September 2026 · Figures for 2026/27 · About our practice
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