Pension through your company
When your company pays into your pension, the money skips corporation tax and dividend tax. At £500 a day, £20,000 into the pension saves £10,555.25 of tax this year and costs you £9,444.75 of take-home, about 47p for each £1 in the pot.
Rates for the 2026/27 tax year. Checked 7 November 2026.
| Without | With | |
|---|---|---|
| Revenue | £110,000.00 | £110,000.00 |
| Salary | − £12,570.00 | − £12,570.00 |
| Employer NI | − £1,135.50 | − £1,135.50 |
| Expenses | − £2,000.00 | − £2,000.00 |
| Employer pension contribution | − £0.00 | − £20,000.00 |
| Profit before tax | £94,294.50 | £74,294.50 |
| Corporation tax | − £21,238.05 | − £15,938.05 |
| Dividends paid out | £73,056.45 | £58,356.45 |
| Salary received | £12,570.00 | £12,570.00 |
| Income tax | − £0.00 | − £0.00 |
| Employee NI | − £0.00 | − £0.00 |
| Dividend tax | − £16,638.93 | − £11,383.68 |
| Take-home | £68,987.52 | £59,542.77 |
| Pension received | £0.00 | £20,000.00 |
| Corporation tax savedProfit stays in the marginal relief band, an average of 26.5% | £5,300.00 |
|---|---|
| Dividend tax avoided | £5,255.25 |
| Tax saved | £10,555.25 |
| Take-home you give up | £9,444.75 |
| Paid into the pension | £20,000.00 |
| Take-home given up per £1 in the pension | 47.2p |
| Standard annual allowance | £60,000 |
|---|---|
| Threshold incomesalary, other income and dividends | £70,926 |
| Adjusted incomethreshold income plus the contribution | £90,926 |
| Allowance available | £60,000 |
| Contribution tested | £20,000 |
| Over the allowance | £0 |
Pension money is not take-home. It is locked away until at least age 57 from April 2028 (55 before then), and most of it is taxed as income when you draw it. This is tax arithmetic, not advice on whether to invest; speak to a regulated financial adviser before you pay in. Rates are for England, Wales and Northern Ireland; Scottish income tax is not supported yet.
Worked example: £500 a day, 220 days, £20,000 into the pension
The company bills £110,000. After a £12,570 salary, £1,135.50 of employer NI and £2,000 of expenses, profit is £94,294.50. With no pension contribution, corporation tax is £21,238.05, £73,056.45 is paid out as dividends, dividend tax is £16,638.93 and you take home £68,987.52.
With a £20,000 employer contribution, profit falls to £74,294.50 and corporation tax to £15,938.05, a saving of £5,300. Dividends fall to £58,356.45 and dividend tax to £11,383.68, a saving of £5,255.25. Take-home falls to £59,542.77. You give up £9,444.75 of take-home and £20,000 reaches the pension, so each £1 in the pension costs you about 47.2p now. The tax saved this year is £10,555.25.
Why the result moves
The corporation tax saving depends on where the company’s profit sits. Below £50,000 each pound of contribution saves 19%. Between £50,000 and £250,000 marginal relief makes the rate on each extra pound 26.5%, so contributions that come out of that band save the most. Above £250,000 the saving is 25%. A contribution big enough to pull profit under £50,000 saves 26.5% on the part above £50,000 and 19% on the rest.
The dividend tax saving depends on which band the lost dividends would have fallen in: 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above £125,140. In the example, all £14,700 of dividends removed would have been taxed at 35.75%. If your income is between £100,000 and £125,140, the contribution can also restore some of your personal allowance, and the calculator shows that saving on its own line.
When this calculator is wrong for you
- You live in Scotland. Scottish income tax bands are not supported yet.
- You are in a defined benefit scheme. The pension input amount is the growth in your benefits, not the money paid in.
- Your allowance was tapered in earlier years. Carry forward is the unused tapered allowance for each of those years, not £60,000 a year.
- You already draw a pension. Taking taxable money flexibly brings in the £10,000 money purchase annual allowance; tick the box under more options.
- You pay into a pension personally as well. Those contributions count towards the allowance.
- The company has associated companies or a short accounting period.
Questions people ask
Why pay in as an employer contribution and not personally?
An employer contribution comes out of company profit before corporation tax and never passes through your hands, so no dividend tax or National Insurance is paid on it. A personal contribution is made from money you have already been taxed on, and gets basic-rate relief added by the scheme plus higher-rate relief through Self Assessment. It is also capped at your relevant UK earnings, which for a director on a small salary is the salary alone.
How much can the company pay in each year?
The annual allowance for 2026/27 is £60,000 of total contributions to your pensions, from you and the company together. If you were a member of a registered pension scheme in any of the previous three tax years, you can carry forward the allowance you did not use in those years, starting with the oldest. This year’s allowance is used first.
Will HMRC accept the contribution as a business expense?
The contribution has to be wholly and exclusively for the purposes of the trade. For a sole director who does the work that earns the income, HMRC rarely challenges contributions, but it can if the total of salary, pension and other benefits is far above what the work is worth. Large one-off contributions may also have their tax relief spread over more than one accounting period. Contributions are deducted in the period they are paid, not when they are accrued.
What is the tapered annual allowance?
If your threshold income is over £200,000 and your adjusted income is over £260,000, the £60,000 allowance falls by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000. For a director, threshold income includes salary, dividends and other income. Adjusted income adds the employer contribution, so a large contribution can itself trigger the taper.
Do I need salary sacrifice?
No. Salary sacrifice exists to save National Insurance on salary an employee gives up. A director who takes a small salary and the rest as dividends can have the company pay into the pension out of profit, which already avoids NI.
Can the company contribute more than my salary?
Yes. The earnings cap applies only to personal contributions. An employer contribution is limited by the annual allowance and by the wholly and exclusively test, not by the size of your salary.
What is the money purchase annual allowance?
Once you have taken taxable money flexibly from a defined contribution pension, for example drawdown income or an uncrystallised lump sum, future contributions to defined contribution schemes are limited to £10,000 a year. Carry forward cannot be used to go above it.
How this is worked out
The limited-company model runs twice at 2026/27 rates, once with no pension contribution and once with the contribution as a company expense. Each run takes revenue less salary, employer NI, expenses and the contribution; charges corporation tax with marginal relief; pays all post-tax profit as dividends; and charges income tax, employee NI and dividend tax with the dividends stacked above salary and other income. The personal allowance is tapered on total income including dividends. The savings are the differences between the two runs, and the cost per £1 is the take-home given up divided by the contribution. A contribution larger than the company’s profit is cut to the profit. The annual allowance check takes threshold income as salary, other income and dividends, adds the contribution for adjusted income, and applies the taper, carry forward and the money purchase annual allowance.
Full formulas, rounding rules and test cases are on the methodology page. Every rate update is listed in the changelog.