Written and reviewed by James Whitfield · Updated for 2026/27 · Editorial standards · Methodology
Limited company directors can make pension contributions directly through the company, avoiding NI and reducing corporation tax. This guide explains the tax advantages, limits, and how employer pension contributions work in practice.
When a limited company makes a pension contribution directly to a director's pension scheme, three tax advantages apply simultaneously. First, the contribution is an allowable company expense, reducing the company's taxable profit before corporation tax. Second, it does not count as employment income, so no income tax or NI applies. Third, the pension fund grows largely tax-free within the fund.
Compare this to paying a higher salary to then personally contribute to a pension. The higher salary creates employer NI (15% above £5,000), employee NI (8% between £12,570 and £50,270), and income tax. The pension relief received personally partially offsets this, but the NI costs are not recovered.
For a company making a £20,000 pension contribution at the 19% small profits rate: the company saves £3,800 in corporation tax. No NI on the contribution. The director receives £20,000 in their pension without paying any personal tax. Effective cost to the company after tax: £16,200.
The pension annual allowance for 2026/27 is £60,000. This is the total amount that can be contributed to pension schemes (from all sources, including both employer and employee contributions) in a single tax year without triggering an annual allowance charge.
The employer's contribution itself is not limited to 100% of earnings, unlike personal contributions. A company can contribute more than the director's salary to their pension — though the total from all sources still cannot exceed the £60,000 annual allowance without a charge.
If you have unused annual allowance from the previous three tax years, you can carry forward and contribute more than £60,000 in a single year, subject to conditions. Pension carry-forward is worth considering if you have built up significant retained profit.
The Money Purchase Annual Allowance (MPAA) applies if you have already flexibly accessed pension savings. Once triggered, the allowance for further money purchase contributions drops to £10,000. Check whether you have accessed any pension flexibly before planning large company contributions.
Company pension contributions are paid directly from the company bank account to the pension scheme. They are not processed through payroll and do not appear on payslips. The contribution appears in the company accounts as an expense in the period it is paid.
You will need a pension scheme that accepts employer contributions. Most SIPP providers and workplace pension schemes accept employer contributions. If you are the sole director, you can set up a director's SIPP and make contributions directly from the company.
For auto-enrolment purposes, the director of a one-person company is typically not required to enrol themselves. The auto-enrolment rules apply to employees, and a sole director with no contract of employment is generally not a worker for auto-enrolment purposes. However, if you have other employees, auto-enrolment obligations for those employees still apply.
Corporation tax relief is given in the accounting period in which the contribution is paid — not when it is accrued in the accounts. If your company has a 31 March year end, a pension contribution paid on 30 March counts for that year. A contribution paid on 2 April counts for the following year.
Yes. A company pension contribution (employer contribution) is an allowable expense that reduces the company's taxable profit before corporation tax. It is also not subject to employer NI, employee NI, or income tax.
£60,000 in total from all sources (employer and employee contributions combined). Contributions above this may trigger an annual allowance charge, though unused allowance from the previous three years can be carried forward.
Yes. Company (employer) contributions are not capped at the director's salary, unlike personal contributions. The £60,000 annual allowance is the overall limit, not salary-related for employer contributions.
No, not in the year of payment. It does not appear as income on your Self Assessment return. The pension fund receives the contribution without any immediate tax cost to you personally.