LIMITED COMPANY GUIDE

Limited company pension contributions for directors.

If you run your own limited company, you can put money into your pension in two ways. The company can pay in for you, or you can pay in personally. This guide explains how each route is taxed, the limits that apply, and what your books need to show.

Figures for the 2026/27 tax year · Last reviewed 21/10/2026

The two routes into a director's pension

Employer contribution. The company pays straight into your pension scheme. The payment is a cost of the company, not money paid to you first.
Personal contribution. You pay in from your own money, after you have drawn it from the company as salary or dividends. Your pension provider then claims tax relief on top.

Both routes count towards the same annual allowance. The big difference is where the tax relief lands. With an employer contribution, the company gets relief against its profits. With a personal contribution, you get Income Tax relief, and the amount you can pay in is limited by your earnings.

How employer contributions are treated for corporation tax

An employer contribution is normally an allowable expense for the company. That reduces its taxable profit, so it reduces its corporation tax bill. For the financial year starting 1 April 2026, the small profits rate is 19% on profits up to £50,000 and the main rate is 25% on profits over £250,000. Companies in between pay the main rate less marginal relief. You can see how those rates fit with other company taxes in our guide to what taxes a small business pays.

HMRC's Pensions Tax Manual sets out a few conditions that matter in practice.

It must actually be paid. Relief is given only for contributions that have been paid. An accrual or provision at the year end does not count.
It counts in the period it is paid. The deduction goes in the accounting period in which the money left the company. It cannot be moved into an earlier or later year.
It must be wholly and exclusively for the business. For a controlling director, HMRC compares the contribution with what would be paid for an unconnected employee in a similar position.
Very large contributions can be spread. If a contribution is more than 2.1 times the previous period's contributions, and the excess over 110% of the previous period is £500,000 or more, relief is spread over two to four years.

The spreading rule rarely affects small companies. The timing rule affects almost all of them. A payment made on the day after your year end falls into next year's accounts.

No tax on you when the company pays in

An employer contribution to a registered pension scheme is not taxed on you as pay. GOV.UK states that no tax is charged on contributions an employer pays to a registered pension scheme for an employee. Its salary sacrifice guidance gives an example where an employer pension contribution carries no Income Tax or National Insurance charge for the employee. The exception is if your total pension savings go over your annual allowance, covered below.

Personal contributions and the earnings limit

If you pay in personally to a relief at source scheme, your provider claims basic rate relief of 20% and adds it to your pot. If you pay Income Tax at a higher rate, you claim the extra relief through your Self Assessment tax return.

Relief on personal contributions is limited each tax year to the higher of £3,600 gross and your relevant UK earnings. Relevant UK earnings include employment income such as salary and bonus. Dividends are not on HMRC's list. This matters for directors who take a small salary and the rest as dividends, as many do. If that is you, our guide to paying yourself as a director covers the salary side.

This example is made up to show the effect. Imagine a director whose only earnings from the company are a salary of £12,570, with the rest taken as dividends. The most they can pay in personally with tax relief is £12,570 gross. They would pay £10,056 and the provider would add £2,514 of basic rate relief.

The company could pay in more than that as an employer contribution, because the earnings limit applies to the member's own contributions. HMRC's manual says employer contributions do not qualify for tax relief for the member, so the company's relief is the route that applies.

The annual allowance

The annual allowance is the most that can go into your pension pots in a tax year before tax is due. For 2026/27 it is £60,000. For a defined contribution scheme, everything paid in counts, including what the company pays and the tax relief added to your own payments.

Carry forward

You may be able to use unused allowance from the three previous tax years. You must have been a member of a UK registered pension scheme in each year you carry forward from. The current year's allowance is used first, then unused amounts from the earliest year. You do not need to tell HMRC that you are carrying forward.

When the allowance is lower

Tapered annual allowance. If your threshold income is over £200,000 and your adjusted income is over £260,000, your allowance falls by £1 for every £2 over £260,000. It cannot fall below £10,000. Employer contributions are added when working out adjusted income.
Money purchase annual allowance. If you have already flexibly accessed a money purchase pension, such as by taking cash from a pot, a lower allowance of £10,000 applies to money purchase savings. Unused money purchase annual allowance cannot be carried forward.

If you go over your allowance, either you or your pension provider must pay the tax, and you report it on a Self Assessment return.

Pension contribution or dividend?

Directors often weigh up whether to take extra profit as a dividend or have the company pay it into a pension. The two are taxed in very different ways.

Dividend. Paid from profit after corporation tax. You may then pay dividend tax personally. Our guide to dividend tax rates has the current figures.
Employer pension contribution. Paid before corporation tax, so it reduces the company's bill. It is not taxed on you when paid in, but the money stays in the pension until you can access it.

Another made-up example. A company has profits of £40,000 before any pension contribution, so it is in the 19% band. It pays an employer contribution of £10,000 for its director. Taxable profit falls to £30,000, and corporation tax falls by £1,900, from £7,600 to £5,700.

If the same company had profits of £300,000, all in the main rate band, the same £10,000 contribution would save £2,500 at 25%. In the marginal relief band between £50,000 and £250,000, each pound of profit is effectively taxed at 26.5%, so the saving per pound is higher still.

The right mix depends on your income needs, your age and your other savings. A pension is a long-term decision, so take advice from your accountant or a regulated financial adviser before making a large contribution.

What your bookkeeping needs to show

The tax treatment depends on facts your books have to prove. Keep these straight through the year, not just at the year end.

Who paid. A payment from the company bank account to the pension provider is an employer contribution. A payment you made personally should not be in the company's books as a company expense.
When it was paid. Code the contribution to the date the money left the bank. That date decides which accounting period gets the relief.
The right account. Use a separate pension costs account for directors, apart from staff workplace pension costs, so the figures are easy to review.
The paperwork. Keep the provider's confirmation for each contribution. It shows the amount, the member and that it went to a registered scheme.
Payments through the director's loan account. If you paid personally and want the company to repay you, record it in the director's loan account, not as a direct pension cost.

Getting these lines wrong is easy when the books are only updated once a year. It is one of the reasons the allowable expenses on your accounts are worth checking as they happen.