How to pay into a pension from your limited company (2026/27 guide)

If you run your own limited company, you can pay into a pension fund in two ways, both of which offer significant tax advantages.

You can opt to make personal contributions or make them through the business as company pension contributions.

In this article, we examine the two options, including the tax implications, to help you make a more informed choice about how to provide for your retirement.

This guide was last updated in September 2026.

Contents

• Personal pension contributions
• Making company pension contributions
• Carry forward rules
• Meeting HMRC rules
• Pension contributions and IR35
• Using a SIPP
• Old pensions and consolidation
• Auto enrolment
• Get expert pension advice
• FAQs
• Further reading

Personal pension contributions

When you pay into a pension scheme out of your own income, you’ll receive tax relief based on the income tax band you fall into.

If you’re taxed at the basic rate, for every £80 you pay in, you’ll actually save £100 into your pension. The tax relief is even greater if you’re a higher (40%) or additional rate (45%) taxpayer.

There is no limit on how much you can pay into a pension. However, there are limits on the amount that can benefit from tax relief. For personal contributions, tax relief is normally limited to 100% of your relevant UK earnings for the tax year. Separately, the standard Annual Allowance is £60,000.

If you have little or no relevant UK earnings, you can normally still pay £2,880 into a relief-at-source pension and receive £720 in basic-rate tax relief, making a £3,600 gross contribution.

If you’re the director of a limited company, you can pay yourself a salary and receive dividends.

Importantly, only the money you take as relevant earnings will count towards the tax relief you can claim when it comes to personal pension savings.

Dividends aren’t considered to be ‘relevant UK earnings’ by HMRC.

In other words, if you decide to take a smaller salary and a larger dividend from the company, your tax relief limit on personal pension contributions will be proportionately lower.

One way to contribute more to your pension fund while still enjoying the available tax benefits is to draw a higher salary from the company.

Another option is to make contributions to your pension through your company in the form of an employer contribution (see below).

Making company pension contributions

Any contributions made by your company normally count towards your £60,000 Annual Allowance. Unlike personal contributions, employer contributions are not restricted by the amount of relevant UK earnings you receive.

As eligible employer pension contributions are an allowable business expense, your company will receive Corporation Tax relief.

This means that your limited company could save Corporation Tax at 19% or 25%, depending on its annual profits for the 2026/27 tax year, with marginal relief applying between the £50,000 and £250,000 thresholds. The effective marginal Corporation Tax rate within this band can be 26.5%.

The thresholds are reduced proportionately where your company has associated companies.

Another benefit of paying through the company is that employers aren’t required to pay National Insurance Contributions (NIC) on pension contributions.

Given that the employers’ NIC rate for 2026/27 is 15%, you could save up to that amount by paying into a pension rather than taking the equivalent as salary.

For the company, the tax savings can therefore be significant if money is paid directly into your pension fund rather than as salary.

You can see the potential Corporation Tax saving for different contribution amounts with our company pension contribution tax savings calculator.

Key pension figures (2026/27)

• Annual Allowance: £60,000
• Money Purchase Annual Allowance: £10,000
• Tapered Annual Allowance: may apply where threshold income is over £200,000 and adjusted income is over £260,000
• Employer NIC rate: 15%
• Corporation Tax rates: 19% (≤ £50k), 25% (≥ £250k), marginal relief in between

Company or personal pension contributions?

Which option works best will depend on how you take money from your company and how much you want to contribute.

For a detailed comparison, including a worked example, read our guide to company vs personal pension contributions.

What are carry forward rules?

If you need to make a sizeable pension contribution, you may be able to use carry forward to take advantage of unused Annual Allowance from previous years.

The current Annual Allowance is £60,000, but you can carry forward unused allowances from the past three tax years, provided you meet the carry forward rules.

For personal contributions, carry forward does not override the separate rule limiting tax relief to your relevant UK earnings for the current tax year. Employer contributions are not subject to this earnings limit.

Make sure your contributions meet HMRC rules

It’s important to note that any contributions you make must comply with existing rules to qualify for tax relief.

HMRC states that employer pension contributions must be made ‘wholly and exclusively’ for the purposes of your business or trade.

Generally, this means that an employee’s overall remuneration should be reasonable when considering their contribution to the business. This includes salary and pension contributions.

This shouldn’t be a problem for small companies where the director(s) are also the main fee earners.

For more on this specific point, read BIM46030, BIM46035, and the HMRC Pensions Tax Manual.

• Make sure the overall remuneration package, including pension contributions, is commercially justifiable for the work performed.
• Where contributions vary significantly between employees, make sure there is a genuine commercial reason for the difference.

Pension contributions and IR35

Pension contributions made by your company can still be relevant where the IR35 rules apply.

Under the original Chapter 8 IR35 rules, employer pension contributions made by your company can be deducted when calculating the deemed employment payment.

Where the off-payroll working rules apply and an engagement is treated as inside IR35, the fee-payer normally deducts PAYE tax and employee NIC before paying your company.

In this situation, further pension saving in relation to that engagement would typically be through a workplace pension or salary sacrifice arrangement offered by the fee-payer, where available.

For contractors who move between outside-IR35 and inside-IR35 engagements, this can create different pension funding routes: company contributions during outside-IR35 contracts, and pension contributions via payroll where an inside-IR35 engagement is subject to the off-payroll rules.

Care is needed to keep track of all pension savings and to make sure you stay within the Annual Allowance.

Using a SIPP

A Self-Invested Personal Pension (SIPP) is a type of personal pension that gives you control over how your savings are invested.

For limited company directors, SIPPs are popular because they accept both personal and employer contributions and offer a wide choice of funds, shares, and managed options.

SIPPs work the same as any registered pension for tax purposes, so the Corporation Tax and income tax benefits described above apply in full.

The key difference is flexibility, i.e. you can take a hands-on approach to investing or keep it simple with ready-made portfolios.

One example is the Interactive Investor SIPP, which charges a low fixed monthly fee rather than a percentage of your pension pot. This can be particularly cost-effective for directors with larger balances.

Read our in-house guide to investing in a SIPP for more details.

Have you got several old pensions?

Many limited company directors have one or more ‘old’ pensions from previous employers or personal plans set up years ago. Having several pots isn’t always a problem, but it can make it harder to keep track of charges and performance.

When consolidation might help

• It’s easier to manage one plan than multiple small pots.
• Modern providers often offer lower fees and a broader range of investment options.
• You’ll have a clearer view of how much you’ve saved for retirement.

When to be cautious

• Defined benefit (final salary) pensions are usually best left where they are.
• Some older pensions may have guarantees (such as guaranteed annuity rates) that are lost if transferred.
• Exit fees can apply to older contracts.

Before moving any pension, gather details about what you already have and seek professional advice. Even small changes now can have a major impact on your retirement income.

Practical steps

Before making any decision, gather the paperwork for your existing pensions. If you are unsure of details, you can use the Government’s Pension Tracing Service to track them down.

Read our guide to pension consolidation for directors.

The choice is yours

It’s up to you to decide whether or not making employer contributions would be more beneficial than making personal pension contributions.

Hopefully, this article has provided some guidance on a complex issue. However, please note that pension rules can and do change.

Always seek professional advice before deciding the most tax-efficient way to invest in a pension.

Auto enrolment for small companies

Under the Pensions Act 2008, UK employers are required to automatically enrol eligible staff into a workplace pension and make employer contributions.

• Eligibility typically refers to a worker aged 22 to State Pension age, earning at least £10,000 per year, and usually working in the UK.
• If you are a sole director with no other employees, or you only have directors without employment contracts, you are typically outside the scope.

Many small firms use the government-backed NEST scheme. See the official overview at GOV.UK: workplace pensions.

Read our guide to auto enrolment for small companies.

Frequently asked questions

Can I contribute to a pension if I only receive dividends?

No. Dividends are not classified as relevant UK earnings by HMRC. Personal pension contributions can only be based on income such as salary, self-employed profits, or certain other types of relevant UK earnings.

If you only take dividends from your company, you cannot obtain tax relief on personal contributions above the basic £3,600 gross allowance (£2,880 net paid in plus 20% tax relief added by the provider).

To contribute more, you would need to draw a salary or make employer contributions through the company.

Read more in this guide: employer pension contributions vs. dividends.

Can my company pay into my spouse’s pension?

Yes, but only if your spouse is employed by or is a director of the company. Employer contributions must be part of a reasonable overall remuneration package for the duties performed.

For example, if your spouse performs genuine work for the business, the company can make pension contributions on their behalf, provided the level is proportionate to their role.

Contributions made without a justifiable business purpose may be disallowed by HMRC.

What if my company makes a loss?

Employer pension contributions must meet the ‘wholly and exclusively for the purposes of trade’ test (BIM46035).

There is no rule that employer pension contributions must be limited to the company’s profits for that year. However, HMRC may challenge a large pension contribution if the director’s overall remuneration looks excessive compared with the value of the work performed for the business.

A loss-making company can therefore still make employer pension contributions, but significant contributions should be commercially justifiable. Always seek advice before paying a large contribution in a loss-making year.

What if the company doesn’t do well one year, but made good profits in previous years?

There is no specific rule restricting an employer pension contribution to the company’s profit in the year it is paid. The key Corporation Tax question is whether the contribution forms part of a commercially justifiable remuneration package and meets the wholly and exclusively test.

You may also be able to use the carry-forward rules to make larger contributions if you have unused pension allowances from the past three tax years.

Carry forward works at the individual level, not the company level, so the company contribution must still satisfy the rules for Corporation Tax relief.

Do employer contributions appear on my personal tax return?

No. Employer contributions are paid gross by the company and are not treated as your personal income.

They do not normally need to be declared on your Self Assessment return, although they count towards your Annual Allowance.

For the company, eligible contributions are recorded as an expense in the accounts and reduce taxable profits for Corporation Tax purposes.

If contributions exceed the Annual Allowance, however, you may need to declare an Annual Allowance charge on your tax return.

Can I use carry forward with company contributions?

Yes. Carry forward applies when calculating the Annual Allowance available for pension savings, including employer contributions.

If you have not used your full Annual Allowance in the previous three tax years, you may be able to add the unused amount to your current year’s allowance, provided you meet the carry forward conditions.

To do this, you must first use your full £60,000 allowance in the current year before using unused allowance from earlier years.

The company can make a larger contribution using your unused allowances, provided the contribution is commercially justifiable and the overall remuneration package remains reasonable.

Example:

If your total pension savings were £40,000 in 2023/24, £50,000 in 2024/25, and £40,000 in 2025/26.

That leaves £20,000 + £10,000 + £20,000 = £50,000 of unused allowance.

In 2026/27, you could therefore potentially have £60,000 (current allowance) + £50,000 (carry forward) = £110,000 of Annual Allowance available, assuming you meet the carry forward conditions and have not triggered the Money Purchase Annual Allowance.

What is the Money Purchase Annual Allowance (MPAA)?

The MPAA is a reduced allowance that applies if you have already accessed pension benefits flexibly (for example, by taking taxable drawdown income).

In this case, your Annual Allowance for money purchase contributions falls from £60,000 to £10,000 per year (as of 2026/27).