Contributing to your pension via a limited company explained

What is the best pension for a limited company director? 

If you’re a company director and have paid enough national insurance (NI) contributions, you should be eligible for the state pension. 

However, if you want a comfortable retirement, it’s also worth saving into a private pension, such as a self-invested personal pension (SIPP) or a stakeholder pension. 

You should consider the features and pros and cons of each pension before choosing. 

Unbiased can connect you to a qualified financial adviser who can help you choose the right pension and boost your contributions.

Can I contribute to my pension via my limited company?

The short answer is yes. Pension contributions are among the few tax breaks available to limited companies. Putting money into your pension isn't only about saving for your retirement but is also a tax-efficient way of using profits from your business.

As a company director of your own limited company, you can contribute to your director's pension both as employer contributions and as an individual. And it's possible to claim pension tax relief on both.

However, contributing through our limited company is usually more tax-efficient than contributing your funds as an individual, as you'll reduce your company's taxable profits and your corporation tax liability.

How much can my company contribute to my pension as a company director?

When you make personal contributions, the amount you can pay into your pension and still get tax relief is limited to 100% of your earnings, up to a maximum of £60,000.

However, with employer contributions, the earnings restriction doesn’t apply, meaning you can pay in your full annual allowance of £60,000, so long as you meet HMRC’s ‘wholly and exclusively’ test. An accountant will be able to help if you aren’t sure.

This can be particularly helpful if you take income from your company in the form of dividends - as these don’t count as earnings for annual allowance purposes, reducing the amount you could personally pay into a pension.

If you have a large amount you'd like to contribute, you may be able to benefit from the 'carry forward' rule.

This lets you use any unused annual allowance from the previous three tax years as long as you've been a part of a registered pension scheme during this time.

So, if you haven’t used your total allowance over the last three tax years, you can use the leftover amount to boost your contributions this year.

How much tax could I save by contributing to my pension via my limited company?

When you pay into a pension via your limited company, that payment will count as an ‘allowable expense,’ which means it can be offset against your company’s corporation tax bill. Currently, corporation tax is 25%.

Another benefit is that employers don't have to pay NI on pension contributions.

The national insurance rate for 2024/25 is 13.8% (rising to 15% in April 2025), so by contributing directly into your pension rather than paying it as salary, you will also save this amount. 

This means your company could save by paying money directly into your pension rather than paying it in the form of a salary.

Whether this route makes the most sense will depend on a range of factors, including your profits and how you take your income. An accountant or financial adviser can advise on whether it’s more tax-effective to make employer or personal contributions. 

How do I contribute to my pension via my limited company?

You can make pension contributions from pre-taxed company income. As employer contributions are classified as 'allowable expenses,' your business will receive tax relief, reducing your corporation tax bill. 

Company director pension contributions are an allowable business expense if employer contributions pass the 'wholly and exclusively' test, meaning that HMRC deems the employer pension contribution wholly and exclusively for the employer's trade or profession. 

HMRC will want to establish if the total remuneration level – salary, dividends, bonuses, benefits in kind, and pension contributions, etc is commercially 'reasonable' for the work being done. 

Where the individual is the sole company director and main generator of the company's income, the contribution is unlikely to fail this test, but check with an accountant who specialises in small businesses. 

Other factors HMRC will examine before allowing pension contributions via your limited company include: 

• Checking that pension contributions aren't more than the company's annual profits. So, if your company turns a profit of £20,000 in a tax year, £20,000 will likely be the maximum the company can contribute to your pension for that year.
• If you employ staff, ensure you're making similar pension contributions to others in your company doing work of a similar value. 

As pension schemes can be complex, it's worth getting advice from a qualified financial adviser. 

What are the other tax-efficient ways to employ cash as a company director?

Dividends can be paid to anyone who owns shares in a company as long as the company is making sufficient profit to cover these payments.

They're exempt from National Insurance contributions and are discretionary, subject to the company being able to afford to pay them.

A shareholder can receive up to £1,000 in dividends in any tax year before paying tax.

You could consider a Self-Invested Personal Pension (SIPP) which can offer you a greater range of investment choices. SIPPs are also more flexible as you can invest and manage your portfolio regularly.

An alternative is a small-self-administered pension scheme (SSAS). Unlike other defined contribution schemes, an SSAS must be set up via a trust and must have no more than 11 members.

Directors of family businesses often set these up on behalf of themselves and a small number of specified employees to give family members a share in the business's assets and pension.

There are various ways to get tax relief if you're self-employed (a sole trader or partner in a partnership) when spending money to operate your business.

Some costs you may be able to claim for include:

• Office costs
• Travel costs
• Staff costs
• Training costs
• Advertising
• Marketing
• Things you buy to sell on such as stock or raw materials.

You can also get tax relief on things such as child maintenance payments.

Need help with your pension contributions? 

Unbiased can connect you with a qualified financial adviser who can offer vital guidance on your pension contributions.