Limited company pension contributions: rules and limits

A limited company can pay into a director's pension. The limit that usually matters is the director's annual allowance, £60,000 in 2026/27, plus any carry forward.

Limited company pension contributions count as employer contributions, so they follow different tax rules from money a director pays in personally. The sections below set out how the annual allowance and carry forward limit the payment, the test HMRC applies to the company's deduction, what happens with National Insurance, and how the money gets into the scheme. Every company's accounts and pay mix differ; a director hoping an FCA-authorised adviser will look over theirs on a free phone call can request that via the form on this page.

Can a limited company make pension contributions for a director?

Yes. HMRC's Pensions Tax Manual says any employer of a member of a registered pension scheme may make contributions to that scheme. A contribution from anyone who is not the member's employer is treated differently: for tax purposes, the manual says, it is regarded as if the member had made it.

Two questions then decide how much is sensible. Will the company be allowed to deduct the payment from its profits, and will the payment fit inside the director's annual allowance? They are separate tests: the sections below take the allowance first, then the company's deduction. Which schemes will accept a company's payment, and in what form, is set by each provider's own terms, so that is worth checking before the first transfer.

Is there a maximum a limited company can pay into a pension?

For the company, the answer is that tax law sets no fixed cap on relief. HMRC's Pensions Tax Manual says that, unlike for scheme members, there is no set limit on the amount of tax relief that an employer may receive in respect of its contributions, and adds that relief "is not automatic" because it is considered under normal business-expense rules. The practical ceilings come from elsewhere.

The director's annual allowance. GOV.UK describes the annual allowance as the yearly ceiling (6 April to 5 April) on pension saving before tax is due, and gives it as £60,000 for the current tax year, 2026/27. For defined contribution schemes, the total paid in "by you or anyone else (for example, your employer)" counts, across all your private pensions together.

Not your earnings. The 100% of earnings limit on relief applies to money you pay in yourself, covered in pension tax relief, so a company can pay in more than a director's salary. The size of the whole pay package against the director's work still matters for the company's deduction, as the "wholly and exclusively" section below explains.

When the allowance is lower. GOV.UK says it may be lower after flexibly accessing a pension or on a high income. The money purchase annual allowance is £10,000 in 2026/27 according to HMRC's rates page; see the money purchase annual allowance guide. The tapered allowance affects those with threshold income over £200,000 and adjusted income over £260,000 in 2026/27, explained in the taper guide.

Going over the allowance is not a bar: it produces a tax charge, which is covered at the annual allowance charge page. A director weighing a bigger company payment against these limits can ask an adviser to run through it, free, by using this page's short form.

Can the company use carry forward to pay in more?

Yes, the director can, if the conditions are met. GOV.UK says that if you use all of your annual allowance for the current tax year, "You might be able to carry over any annual allowance you did not use from the previous 3 tax years." The Pensions Tax Manual adds the key condition: the individual must have been a member of a registered pension scheme at some point in the previous tax year concerned. Unused allowance for a past year is the annual allowance for that year minus the total pension input amount for it.

The allowance for the current year is used first, then the unused amounts from the three earlier years, starting with the earliest. For 2026/27 the three earlier years are 2023/24, 2024/25 and 2025/26, and HMRC's rates page lists £60,000 for each.

An illustration with invented numbers

Suppose a director paid £30,000, £50,000 and £40,000 into pensions (from all sources) in 2023/24, 2024/25 and 2025/26, and was a member of a scheme in each year. Unused allowance is £60,000 − £30,000 = £30,000, then £10,000, then £20,000: £60,000 in all. In 2026/27 the available allowance is £60,000 + £60,000 = £120,000, so a company payment of up to £120,000 would not cause an annual allowance charge, assuming nothing else is paid in that year, no taper and no flexible access. These figures are invented for the sum, and they say nothing about whether the company could deduct a payment that large, which is the "wholly and exclusively" question covered next.

Carry forward does not work if the money purchase annual allowance applies: HMRC's manual says unused allowance from earlier years cannot be added to it. The full mechanics are in the carry forward guide.

What does "wholly and exclusively" mean for a pension contribution?

The test comes from the tax statutes that decide which business costs reduce taxable profit. HMRC's Business Income Manual (BIM46035) cites the Income Tax (Trading and Other Income) Act 2005 and the Corporation Tax Act 2009 as its basis, and begins with this rule: "A pension contribution by an employer to a registered pension scheme in respect of any director or employee will be an allowable expense unless there is a non-trade purpose for the payment."

The manual says that where the contribution is part of a remuneration package paid wholly and exclusively for the purposes of the trade, the contribution is allowable. The question HMRC asks is whether there was a non-trade purpose, and the manual states that this "will depend upon the facts of the individual case".

For owner-managed companies the manual gives a yardstick. Where the package for a director of a close company, or for a close relative or friend of the director, "is comparable with that paid to unconnected employees performing duties of similar value", HMRC staff are told to accept the contributions as paid wholly and exclusively for the trade. Where nobody does genuinely comparable work, the manual points to its general guidance on pay to close relatives (BIM47105). Its points on an excessive overall package, and on disallowing only the part that fails, are covered in employer pension contributions and tax.

Where an employer increases its contribution because a scheme is underfunded, the manual tells HMRC staff to consider the full facts, including the history of pay and contributions, before challenging the deduction on year-to-year comparisons alone. Whether a particular payment is safe depends on the company's accounts and the director's role, so it is a point to settle with the company's accountant before a large payment.

Does a company pension contribution attract National Insurance?

The Treasury's guidance on salary sacrifice says "All employer pension contributions will continue to be free of NICs." So a company payment into the director's scheme does not add employer National Insurance, and nothing is deducted from the director's pay for it, because it never passes through pay. The Pensions Tax Manual separately says no income tax liability arises on the member in respect of earnings where the employer makes contributions into a registered pension scheme.

That is the position for a direct company payment. Salary sacrifice is a different arrangement, and from April 2029 only the first £2,000 a year of employee contributions made that way is to stay exempt from National Insurance. The salary sacrifice changes page has the timetable and the 2026 Act behind the cap, and employer pension contributions and tax covers how the employee side is taxed.

How does the company pay money into the pension?

The company pays the provider from its own bank account, not through the director's personal funds. Providers set the mechanics. AJ Bell's SIPP key features, as one example, say an employed person's employer can contribute, that an employer making a single contribution can pay by cheque or electronic transfer, and that employer contributions are "payable gross" with the employer claiming "their own tax relief directly". The same document says the contributions do not count towards the member's tax relief limit but do count towards the annual allowance. Another provider may word it differently, so ask each one for its employer contribution process and any minimum.

On timing, the manual says employers' contributions are allowed as a deduction for the period of account in which they are paid, "and for no other period", unless a deduction is spread. A very large rise in what the company pays from one period to the next can instead mean the deduction is spread over later periods, which matters for a big catch-up payment; the guide to pensions for limited company directors gives HMRC's thresholds. The allowance, by contrast, runs on the tax year, so a company with a year-end in, say, December has two clocks to watch. The Pensions Tax Manual warns that payments near the start or end of a tax year need care or the desired relief may not be received.

Which scheme types take a payment from a company varies by provider. For choices between product types, see the SIPP guide, and the guide to pensions for limited company directors compares the routes. Investments held in a pension can fall as well as rise in value, so a director may get back less than was paid in.

Common worries about paying in through the company

Can the company put in more than I am paid?

Tax law sets no cap on the company's relief, and the 100% of earnings rule applies to your own contributions. The limits that matter are the annual allowance and whether the whole package passes the "wholly and exclusively" test for the work you do.

Can the company pay a spouse or other relative who works in the business?

The manual's wording on close relatives is that contributions are accepted where the package is comparable with that paid to unconnected employees performing duties of similar value. The relative needs to be doing real work to that value.

Which tax year does a company payment fall in?

For the director's annual allowance, the tax year it is paid in, because GOV.UK counts payments into a defined contribution scheme by tax year. The company's deduction follows its own period of account, and the two calendars match only if the company's year ends on 5 April.

What if I have already started taking money from my pension?

Flexible access can bring in the money purchase annual allowance, £10,000 in 2026/27 per HMRC's rates page. AJ Bell's key features add that carry forward can no longer be used after that point; see the guide for the triggers.

Do I have to be a member of a scheme in earlier years to carry forward?

Yes: the manual requires membership of a registered pension scheme at some point in each year you carry forward from. Having no pension input in a year still leaves the full allowance for that year unused.

Is there a difference for a company with no trade?

Yes. For a company not carrying on a trade, HMRC's Business Income Manual points to separate guidance on management expenses instead of the trading test. An adviser can explain how that sits with your pension plans, free, via the short form here.