There is no fixed cap on what your company can pay into your pension. What matters is the annual allowance, currently £60,000 for most people, which applies to you as the pension member, not to the company as the payer. Your company can contribute more than your salary, and the payment usually qualifies for corporation tax relief if it meets HMRC’s “wholly and exclusively” test. Go above your annual allowance (including any carried forward from previous years) and you personally face a tax charge, not the company.
Here’s the practical shape of it for the 2026/27 tax year:
Employer pension contributions for company directors are not capped by salary, but they are capped by the member’s annual allowance and must pass HMRC’s wholly and exclusively test to secure corporation tax relief.
| Point | Details |
|---|---|
| Annual allowance applies to you | The £60,000 standard annual allowance covers all contributions made to you, not the company, in a tax year. |
| Carry forward can unlock more | Unused allowance from the previous three tax years can be added, using the oldest unused year first. |
| Salary doesn’t cap company payments | Employer contributions aren’t limited by your salary, but must meet HMRC’s commercial reasonableness test. |
| Timing decides the tax year for relief | Contributions must clear before your company’s accounting year end to get relief in that period. |
| Get the structure checked properly | Priceandaccountants reviews carry forward, contribution sizing, and SSAS suitability before you commit funds. |
The mechanics differ more than most directors expect, and the difference is where most of the tax efficiency sits.
A personal contribution comes from your own after-tax income, is capped by your relevant UK earnings (broadly, your salary, not dividends), and receives tax relief at source, with higher and additional rate relief claimed through your tax return. If you pay yourself a low salary and take the rest as dividends (a common structure for company directors), your personal contribution allowance shrinks accordingly. Pay yourself £12,570 in salary and you can personally contribute at most that amount and still get full relief.
An employer contribution, by contrast, comes straight from company funds. It isn’t tied to your salary level at all, and it still reduces the company’s taxable profit.
Auto-enrolment duties can still apply depending on your PAYE setup. It’s worth checking your obligations with The Pensions Regulator before assuming director-only companies are automatically exempt.
The standard annual allowance is set at a specified level for the 2026/27 tax year, and it captures every contribution made to you, whether from your company, from you personally, or both combined. There’s no separate allowance for employer money. If your company pays in £60,000 and you also pay in £5,000 personally, you’ve breached the limit by £5,000 unless you have unused allowance from earlier years to draw on.
That’s where carry forward comes in. You can use unused annual allowance from the previous tax years, provided you were a member of a registered pension scheme in each of those years. The ordering rule matters: HMRC requires you to use the current year’s allowance first, then the oldest unused year from the three before that, working forward. Get the order wrong and you risk triggering an annual allowance charge unnecessarily.
Then there’s the Money Purchase Annual Allowance (MPAA). Once you’ve flexibly accessed a defined contribution pension, typically by drawing taxable income from it, your annual allowance for future contributions drops sharply, to £10,000. This catches directors out more than any other rule on this list: take a small taxable drawdown from an old pension pot, and suddenly your company’s ability to make large contributions on your behalf is severely restricted.
Here’s a worked example:
Before committing to a figure like this, run it through the official pension annual allowance calculator to confirm your own numbers rather than relying on a rule of thumb.
No, and this trips up more directors than any other point in this guide. Employer pension contributions aren’t capped by your salary. What caps them is HMRC’s wholly and exclusively test: the contribution must be paid for genuine business purposes, not as a disguised way of extracting profit tax-free.
Under BIM46035, HMRC assesses commercial reasonableness by looking at the whole picture: the director’s role and responsibilities, the level of remuneration package as a whole, whether the payment is proportionate to company profits, and whether a similar payment would be made to an unconnected employee doing comparable work.
A contribution for a working director running a profitable business, on a modest salary and no bonus, is straightforward to justify. A substantial contribution from a company with low profitability, paid to a director who does little day-to-day work, invites scrutiny.
Keep the paper trail tidy:
Employer contributions reduce the company’s taxable profit for corporation tax purposes, provided the payment clears before the end of the relevant accounting period. Timing is everything: a contribution paid the day after your year end gets relief in the following period, not the one you were trying to reduce.
The good news on National Insurance: employer pension contributions sit outside PAYE and NIC entirely. No employer’s National Insurance, no employee’s National Insurance, and nothing added to the director’s taxable income for income tax purposes at the point of payment. That’s the core of why employer contributions often beat dividends as a way to extract value from the business.
What to keep on file:
Align contribution timing with your accounting period, not the tax year, and you avoid the most common cause of lost relief.
Most directors default to a SIPP (Self-Invested Personal Pension) because it’s cheaper to run and simpler to administer, and for a single director without complex plans, that’s usually the right call. A SSAS (Small Self-Administered Scheme) becomes interesting once the company wants the pension to do more than sit and grow: lend money back to the business, or buy the commercial premises the company trades from.
| Factor | SIPP | SSAS |
|---|---|---|
| Best for | Individual directors, straightforward saving | Multiple directors, family companies, complex plans |
| Control & governance | Provider manages scheme; member chooses investments | Directors act as trustees with direct control |
| Allowed investments | Wide range via provider platform | Wide range, plus loans to the sponsoring employer and commercial property |
| Costs & admin | Lower fees, simpler reporting | Higher setup and ongoing admin costs |
| Lending to the company / buying property | Not available | Can loan funds to the business or purchase premises the company occupies |
A SSAS can be an effective tool once a company is established enough to justify the running costs, particularly for directors wanting to use pension funds to lend to the business or buy premises. Setup and administration fees mean it rarely pays for itself on a small fund.
Pro Tip: A SSAS tends to earn its running costs once the pension pot reaches a level where property purchase or a company loan is genuinely on the table, not before. Below that, a SIPP usually does the same job for less.
Both structures need registering and running in line with HMRC and The Pensions Regulator requirements, so get advice before choosing between them.
A worked example: a company with taxable profit pays a pension contribution into the director’s pension before year end. Taxable profit drops to £50,000, generating a corporation tax saving that depends on the rate applicable that year, while the director’s annual allowance absorbs the £30,000 without a personal tax charge, assuming sufficient headroom exists.
Run through this before deciding:
Talk to an accountant before making a large one-off top-up, especially where carry forward calculations get complicated or the MPAA might already be in play. Getting the sequencing wrong is expensive to unpick.
Watch for these red flags:
Exceed your annual allowance and HMRC issues an annual allowance charge, effectively clawing back the tax relief. Gov.uk’s guidance on unused allowances explains how to check your position and correct it if you’ve already overpaid.
Most director clients we work with default to dividends because that’s what their previous accountant told them years ago, and nobody’s revisited it since. The maths rarely favours that default once profits climb past a certain point: an employer pension contribution avoids National Insurance entirely and still gets a corporation tax deduction, something no dividend can match.
We typically recommend a SSAS only once a company owns or wants to own its premises, or where multiple family directors want pooled control over the fund. Otherwise a SIPP does the job cheaper. For directors weighing this against dividend policy more broadly, our tax planning guide for founders covers the wider remuneration picture.
Getting the annual allowance, carry forward and wholly-and-exclusively test right in the same tax year isn’t something to work out from a blog post alone. Priceandaccountants is the alternative to guessing your own numbers and hoping HMRC agrees: we check your carry forward position, model the corporation tax saving, and document the commercial rationale before your company pays a penny.
Our director tax planning work typically covers:
A first call usually covers your profit profile, a quick allowance check, and a recommended contribution plan for the current accounting year. If you’d rather have someone confirm the numbers than run them yourself, our strategic advisory and tax planning service is the natural next step, or get in touch through our accounting services page to start the conversation.
Can my company pay more into my pension than I earn in salary? Yes. Employer contributions aren’t limited by your salary, only by your annual allowance and HMRC’s wholly and exclusively test for corporation tax deductibility.
What happens if I exceed my annual allowance? You face an annual allowance charge, which effectively removes the tax relief on the excess amount. Carry forward from the previous three tax years can often prevent this.
Does the Money Purchase Annual Allowance affect employer contributions? Yes. Once triggered by flexibly accessing a pension, the MPAA reduces your allowance to £10,000, regardless of whether the contribution comes from you or your company.
Is a SSAS worth setting up for a small company? Usually not until the fund is large enough, or the company wants to borrow from the pension or buy its own premises, since SSAS administration costs more than a SIPP.
When must the company pay to get corporation tax relief this year? Before the end of the relevant accounting period. Payments clearing after year end get relief in the following period instead.
This article is general information, not a substitute for advice from a qualified financial advisor. Consult a qualified financial professional about your own circumstances before acting on anything here.
