Company Pension Contributions
Employer pension contributions paid directly from your company. They save corporation tax, avoid employer NI, and incur no personal income tax — one of the most tax-efficient extraction methods.
By Omair SaoLast reviewed — rates for the 2026/27 tax year. See how we check our figures.
How It Works
Your limited company makes a pension contribution directly to your SIPP or workplace pension. The contribution is a deductible business expense. Unlike salary, no employer NI is payable. You pay no personal tax. The £60,000 annual allowance is shared with personal contributions.
Tax Treatment
The contribution is a deductible business expense (saves corp tax). No employer NI payable (saves 15%). No income tax or employee NI for the director. Growth is tax-free. 25% tax-free lump sum from age 55 (57 from 6 April 2028).
Tax Advantages
- Corporation tax deduction at 19-25%
- No employer NI payable (saves 15% vs salary)
- No income tax for the director
- No employee NI for the director
- Tax-free growth within the pension
Who Is This Suitable For?
All company directors and business owners. Should typically be prioritised after optimal salary. Combined tax saving can be 40%+ of the contribution.
Worked Example: £20,000 employer contribution from a company paying the 19% rate
- 1Your company expects £40,000 of taxable profit, so corporation tax at the 19% small profits rate would be £7,600.
- 2Before the year end it pays £20,000 into your SIPP as an employer contribution; taxable profit falls to £20,000 and corporation tax to £3,800 — a saving of £3,800.
- 3Paying the same £20,000 as extra salary would have cost the company a further £3,000 in employer National Insurance at 15%, before your own tax and NI.
- 4The full £20,000 arrives in your pension, using £20,000 of the £60,000 annual allowance.
Result: £20,000 leaves the company and reaches you in full, with the company's tax bill reduced rather than increased.
Illustrative figures using the 2026/27 rules on this page, last checked on 25 September 2026.
Advantages and Drawbacks
Advantages
- The contribution is not limited by salary, so a director paid £12,570 can still receive up to £60,000 a year.
- No employer NI, employee NI or income tax is due on the way into the pension.
- Carry forward of three years of unused allowance lets a strong year fund a very large one-off payment.
Drawbacks
- Once paid in, the money cannot be borrowed back or used in the business (a SSAS is the exception).
- HMRC can disallow a contribution that is excessive for the work the director actually does, particularly for a spouse with few duties.
- A large contribution drains company cash, so the business must still be able to pay its own tax and creditors.
Notes for Limited Company Owners
The contribution must be paid by the company from its own bank account, not by you personally and then reimbursed, or it will not count as an employer contribution. Record it in the board minutes. If profits fall between £50,000 and £250,000 the saving is worth more than 19%, because marginal relief pushes the effective rate above the small profits rate.
Common Mistakes
- Accruing the contribution in the accounts but paying it after the year end, which pushes the deduction into the following year.
- Forgetting that personal contributions and workplace pension payments share the same £60,000 allowance.
- Paying into an old workplace scheme that cannot accept employer contributions from a new company.
Who Should Avoid It
Directors whose company needs its cash for growth or has uncertain cash flow, and anyone likely to need the money before their mid-fifties.
Official Sources
The rules on this page come from the following official pages and were checked on 25 September 2026. Read how we check our figures.
Related Calculators
Frequently Asked Questions
How much can my company contribute?
Up to £60,000 per year (shared with personal contributions). You can carry forward unused allowance from the previous 3 years for potentially over £200,000 in one year.
Better than a dividend?
Usually yes for long-term savings. A £10,000 contribution saves ~£2,500 in corp tax and ~£1,500 in employer NI. The trade-off is money is locked until age 55 (57 from 6 April 2028).
Can I use carry forward?
Yes. Unused annual allowance from the previous 3 years can be carried forward, allowing very large contributions in a single year.