Limited company pension contributions explained ​

Limited company pension contributions might not sound exciting, but if you run your own company, they’re one of the most tax-efficient ways to save for the future. 🎉

In this guide, we’ll break down:

• How limited company pension contributions work for directors
• How much you can contribute 💰
• The best pensions for limited company directors
• Why they’re a tax-efficient move for your business

Can my limited company contribute to my pension?

Yes! And it’s more common than you’d think. 

As a company director, your business can make a direct contribution to your pension. These are referred to as employer contributions, and they are considered an allowable business expense.

You can contribute to:

👉 The pension doesn’t have to be set up through your company either. You can use one you’ve already got in place.

Are limited company pension contributions tax-deductible?

They are, and that’s where things get interesting.  👀

When your company pays into your pension, that contribution:

• Isn’t subject to Income Tax or National Insurance
• Reduces your corporation tax bill (as long as it meets HMRC’s “wholly and exclusively” rule)
  

Limited company pension contributions are often a more tax-efficient way to take money from your business compared to just paying yourself a higher salary or dividend.

What are the company pension contribution limits?

Like with most things tax-related, there are a few limits to keep in mind.

The annual allowance for limited company pension contributions can change from year to year. You can check the current limit here.

That includes all contributions made by

• You personally 
• Your company (as employer) 

A few things to note:

• You can carry forward unused annual allowance from the previous 3 years (if eligible)
• If your total income is £260,000 or more, your allowance might be tapered down
• HMRC still expects contributions to be “reasonable” based on your salary and business profits

Not sure what’s “reasonable”? You can always get one-off tax advice from an accredited accountant here.

What’s the best pension for limited company directors?

There’s no one-size-fits-all answer. But here are the main players:

Both accept employer contributions and offer flexibility on how and when to make payments. 📅

Should I contribute through my company or personally?

As a limited company director, you have two main options:

1. Pay into a pension yourself (as an individual) 🙋‍♂️
2. Pay through your company (as an employer contribution) 🏢
   

To help you choose, here’s a breakdown of how they compare.

👉 In most cases, limited company pension contributions are the more tax-efficient route, especially if you’re taking a small salary and dividends.

Anything else to keep in mind?

Make sure your company has the funds

You don’t have to contribute monthly. Some directors prefer to make a lump sum payment at the end of the tax year, once they know how much profit the business has made.

Keep it “wholly and exclusively”

HMRC expects your contributions to be reasonable and in line with your role in the company. Earning £8,000 and contributing £50,000? That might raise eyebrows. 😬

It’s a business expense, and deductible

This means it lowers your profit and your corporation tax bill. Yes, it costs something upfront, but it can save you money in the long run.

Final thoughts: is it worth it?

Limited company pension contributions are one of the most efficient ways to save for retirement, pay less corporation tax and reduce your overall personal tax bill. 

Just make sure you understand the limits, choose the right pension scheme for your needs, and (as always) get advice if you’re not sure where to start.