Pension Allowance Calculator for Ltd Directors UK
See how much your company can put into your pension — and why a director’s contributions follow completely different rules from an employee’s, opening up tax relief most pension guides never mention.
As a limited company director, you can fund a pension two completely different ways — and the one that matters is the one most guides skip. A personal contribution is capped at your salary, so a director paying themselves the typical £12,570 can personally put in barely that much. But an employer (company) contribution isn’t capped by your salary at all — your company can pay up to the full £60,000 annual allowance straight into your pension, even on a tiny salary. It’s an allowable business expense, so it cuts Corporation Tax by 19% to 25%, and it dodges the 15% employer’s National Insurance you’d pay on salary. That’s why pensions are often called the director’s “hidden gem”: a £60,000 company contribution can cost the business far less than paying you the same in salary or dividends. The catches are the tapered allowance for high earners, the three-year carry forward, and the fact the money is locked away until age 55 (57 from 2028). This calculator shows what your company can contribute and the tax it saves. To plan the wider mix, use the Limited Company Profit Calculator; to compare salary and dividends, the Dividend Tax Calculator.
Company and director income
Annual allowance and carry forward
Tapered allowance check
Tax saving and planning view
Allowance result
Available pension allowance
Calculating…
Calculating…
Contribution status
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Excess over allowance
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Corporation Tax saving
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Net company cost
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Adjusted income
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Tapered allowance
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Director pension allowance — quick lookup
The left table shows what a £60,000 company pension contribution actually costs your business after Corporation Tax relief, at each CT rate. The right lists the key allowances and limits. The headline is in the left table: because the contribution is an allowable expense, the company’s net cost is far below the £60,000 that lands in your pension.
| CT rate | CT saved | Net cost |
|---|---|---|
| 19% (small profits) | £11,400 | £48,600 |
| 25% (main rate) | £15,000 | £45,000 |
| Marginal band | up to ~26.5% | ~£44,100 |
| Item | Value |
|---|---|
| Annual allowance | £60,000 |
| Tapered floor | £10,000 |
| Taper starts (adjusted) | £260,000 |
| MPAA | £10,000 |
| Carry forward | 3 years |
The “net cost” is the £60,000 contribution minus the Corporation Tax it saves, because employer pension contributions are an allowable business expense. At the 25% main rate, £60,000 going into your pension costs the company just £45,000 in real terms. The marginal band (profits £50,000–£250,000) carries the highest effective relief, around 26.5%. None of this counts the further saving versus paying the same as salary, which would also carry 15% employer’s National Insurance.
How the pension allowance works for directors
For a company director, the single most important thing to understand is that there are two ways to fund a pension, and they follow different rules. Get the distinction right and the pension becomes one of the most tax-efficient ways to take money out of your company. Get it wrong and you leave most of the benefit on the table.
Personal contributions are capped by your salary
When you pay into a pension from your own pocket, tax relief is limited to 100% of your relevant UK earnings — broadly your salary, not your dividends. Most directors pay themselves a small salary, often around the £12,570 personal allowance, and take the rest as dividends. Dividends don’t count as relevant earnings. So a director on a £12,570 salary can personally contribute only about £12,570 a year with tax relief, no matter how profitable the company is. This is the trap that catches directors who treat their pension like an employee would.
Company contributions are not capped by your salary
This is the part that changes everything. When your company pays into your pension as an employer contribution, the salary cap doesn’t apply. Your company can contribute up to the full £60,000 annual allowance regardless of how small your salary is. The contribution is an allowable business expense, deductible against profits before Corporation Tax, and unlike salary it carries no employer’s National Insurance.
Why the company route wins
Take £60,000 as salary instead and the company pays about £9,000 in employer’s NI on top, while you lose Income Tax and employee NI on the way out — a higher-rate taxpayer might keep only around £34,800 of it. Pay the same £60,000 straight into your pension as an employer contribution, and the full £60,000 lands in the pot, the company saves up to £15,000 in Corporation Tax, and no NI is due. The money is locked away until age 55 (57 from 2028), which is the genuine trade-off — but for value you don’t need now, the company contribution is hard to beat.
Worked examples
Four scenarios showing how the allowance works for directors in different situations.
Scenario 1 · Low salary, high dividends
Why the company route is the only real option
Personal contribution limit: ~£12,570 (relevant earnings)
Company contribution limit: £60,000 (not capped by salary)
A typical director paying themselves £12,570 and taking dividends can personally put in only about £12,570 with tax relief — dividends don’t count as relevant earnings. But their company can contribute the full £60,000 as an employer contribution, no matter the salary. This is the single most common director pension situation, and it’s exactly why the company route exists. Personally, they’re stuck; through the company, they have the full allowance.
Scenario 2 · Company contribution vs salary
The same £60,000, two very different outcomes
As salary: company pays ~£9,000 employer NI on top
Director keeps (higher rate): only ~£34,800
Putting £60,000 into the pension lands the full amount in the pot, saves the company up to £15,000 in Corporation Tax, and triggers no National Insurance. Paying the same £60,000 as salary costs the company about £9,000 in employer’s NI, and a higher-rate director keeps only around £34,800 after Income Tax and employee NI. The pension route is dramatically more efficient — provided you can leave the money until pension age.
Scenario 3 · Bumper year, carry forward
Using three years of unused allowance
Total available: £195,000 in one go
Caveat: personal contributions still capped at earnings
A director who’s had a very profitable year, and hasn’t used their allowance in the past three years, can carry forward the unused amounts — potentially contributing £195,000 in one tax year. The current year’s allowance must be used first, and you must have been a pension scheme member in the years you carry forward from. For company (employer) contributions this isn’t limited by earnings, which makes carry forward especially powerful for directors banking a good year.
Scenario 4 · High earner, tapered allowance
When the allowance shrinks
Excess over £260k: £40,000 · reduce by £40,000 ÷ 2 = £20,000
Tapered allowance: £60,000 − £20,000 = £40,000
A high-earning director with adjusted income of £300,000 (and threshold income over £200,000) sees the allowance taper. Every £2 of adjusted income above £260,000 cuts the allowance by £1, so £40,000 of excess cuts it by £20,000, leaving £40,000. At £360,000 of adjusted income the allowance hits its £10,000 floor. Crucially, employer contributions count towards adjusted income — so a large company contribution can itself trigger or deepen the taper. High earners need to model this carefully.
Personal vs employer contributions — the distinction that decides everything
Almost every pension guide is written for employees, so it treats “your pension contribution” as one thing. For a company director it’s two things, governed by different rules, and choosing the wrong one wastes most of the benefit. Work through what separates them:
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1
What limits the contribution?
A personal contribution is capped at your relevant earnings — your salary, not dividends. A company contribution is capped only by the £60,000 annual allowance, regardless of salary. For a low-salary, high-dividend director, that’s the difference between ~£12,570 and £60,000.
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2
Where does the tax relief come from?
A personal contribution gets Income Tax relief at your marginal rate. A company contribution is an allowable business expense, cutting Corporation Tax by 19% to 25%, and skips the 15% employer’s NI you’d pay on salary. For most directors the company route saves more.
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Does it count towards the taper?
For high earners, employer contributions count towards adjusted income, so a big company contribution can itself trigger or worsen the tapered allowance. Below £200,000 threshold income the taper never applies, however large the company contribution.
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Is the money locked away?
Both routes lock the money until age 55, rising to 57 in 2028. That’s the real trade-off against the tax saving. Contribute only what you won’t need before then, and keep enough liquidity for current needs — the pension is efficient, not free cash.
£60,000 — three ways for a higher-rate director to take it
Same £60,000 of company money, very different results:
The same £60,000 of company money puts the full amount in your pension, or leaves a higher-rate director with roughly £34,800 if taken as salary — a gap of around £25,000, before counting the employer’s NI the company also avoids. That’s why the employer contribution is so often the right answer for value you don’t need right now. The honest caveats: the money is locked until pension age, and high earners must watch the taper, since the company contribution itself counts towards adjusted income. For most owner-managed directors, though, the company pension contribution is the most efficient pound-for-pound way to extract value from the business.
Carry forward — the bumper-year lever
If you haven’t used your full allowance in the past three years, carry forward lets you mop up the unused amounts on top of the current year’s £60,000 — potentially well over £100,000 in a single highly profitable year. You must use the current year’s allowance first, and you must have been a member of a registered pension scheme in each year you carry forward from. Because company contributions aren’t capped by your earnings, carry forward is particularly useful for directors who want to move a good year’s profit into the pension efficiently. Check the company has the profit to support it first with the Limited Company Profit Calculator.
Two scenarios that change the picture
What if…
You pay yourself only £12,570 salary?
What if…
Your adjusted income is over £260,000?
Key director pension terms explained
A director’s pension brings together the annual allowance, two contribution routes, Corporation Tax relief, and a set of limits for high earners. The ten terms below cover what you’ll meet when planning company contributions.
- Annual allowance
- The maximum that can go into your pension each tax year with tax relief — £60,000 for most people, from all sources combined. Contributions above it can trigger an annual allowance charge. It’s the headline figure a director plans around.
- Employer (company) contribution
- A payment your company makes directly into your pension. Not capped by your salary, it’s an allowable business expense that cuts Corporation Tax and carries no employer’s National Insurance. The key route for most directors.
- Personal contribution
- A payment you make from your own income. Tax relief is limited to 100% of your relevant earnings — your salary, not dividends — so it’s restricted for directors on a low salary.
- Relevant earnings
- The income that caps your personal pension contributions — broadly salary and earned income, not dividends. A director paying themselves £12,570 has roughly £12,570 of relevant earnings, which is why personal contributions are limited for them.
- Carry forward
- Using unused annual allowance from the previous three tax years on top of the current year’s. You must use the current year first and have been a scheme member in the years carried forward from. Powerful for directors in a bumper year.
- Tapered annual allowance
- A reduced allowance for high earners. It applies when threshold income exceeds £200,000 and adjusted income exceeds £260,000, cutting the allowance by £1 for every £2 over £260,000, down to a £10,000 floor.
- Threshold income
- Broadly your total taxable income before pension contributions. If it’s £200,000 or below, the taper never applies, however large your adjusted income. The first of the two tests for the tapered allowance.
- Adjusted income
- Your total income plus employer pension contributions. This is the figure tapered above £260,000 — and because it includes company contributions, a large director contribution can itself push you into the taper.
- Money Purchase Annual Allowance (MPAA)
- A reduced allowance of £10,000 that applies once you flexibly access a defined contribution pension (beyond the tax-free lump sum). It prevents recycling, and is often irreversible, so accessing a pension while still saving needs care.
- Allowable business expense
- A cost deductible from company profits before Corporation Tax. Employer pension contributions usually qualify (subject to the “wholly and exclusively” test), which is what gives the company route its 19%–25% Corporation Tax saving.
Five mistakes directors make with pension contributions
Director pensions are powerful but easy to get wrong, usually because the rules differ from an ordinary employee’s. These five errors, drawn from the recurring r/UKPersonalFinance and r/SmallBusinessUK threads, are the costly ones.
Contributing personally instead of through the company
A director on a low salary who pays into their pension personally is capped at their relevant earnings — often just their £12,570 salary, because dividends don’t count. Routing the contribution through the company instead unlocks the full £60,000. Many directors leave most of the allowance unused simply by choosing the wrong route.
Cost: most of the £60,000 allowance wasted Fix: contribute via the company, not personallyThinking dividends count as relevant earnings
Dividends are not earned income, so they don’t increase your personal contribution limit. A director taking £100,000 in dividends and £12,570 in salary can still only personally contribute around £12,570. The fix is the company route, where the salary cap simply doesn’t apply.
Cost: an unexpectedly tiny personal limit Fix: use employer contributions for the restForgetting the company contribution feeds the taper
For high earners, employer contributions count towards adjusted income, so a large company contribution can itself trigger or deepen the tapered allowance, risking an annual allowance charge. Above £200,000 threshold income, model the contribution before committing — the contribution can be caught by the taper it creates.
Cost: an annual allowance tax charge Fix: model adjusted income before contributingTriggering the MPAA by accident
Flexibly accessing a pension — taking taxable income, not just the tax-free lump sum — cuts your future allowance to £10,000 via the MPAA, and it’s often irreversible. A director who dips into one pension while still wanting to fund another can slash their allowance without realising. Take advice before flexibly accessing.
Cost: allowance slashed to £10,000 Fix: don’t flexibly access while still savingOver-contributing and locking up needed cash
The pension is tax-efficient, but the money is locked until age 55 (57 from 2028). Directors who maximise contributions without keeping enough liquid can find themselves cash-short for current needs. Contribute what you genuinely won’t need before pension age, and keep a working buffer in the business.
Cost: cash locked away when you need it Fix: contribute only what you can spareFrequently asked questions
How much can my company pay into my pension?
Your company can contribute up to the £60,000 annual allowance each tax year as an employer contribution — and crucially, this isn’t capped by your salary the way a personal contribution is. Even on a £12,570 salary, the company can pay in the full amount.
If you’ve not used your allowance in the previous three years, carry forward can let you contribute more than £60,000 in one year. High earners may face a reduced (tapered) allowance, and employer contributions must meet the “wholly and exclusively” test to be deductible.
What’s the difference between personal and company pension contributions?
A personal contribution is capped at your relevant earnings — broadly your salary, not dividends — so it’s limited for a director on a low salary. A company (employer) contribution isn’t capped by salary at all and can use the full £60,000 allowance.
The company route is also more tax-efficient: it’s an allowable business expense that cuts Corporation Tax by 19% to 25% and carries no employer’s National Insurance. For most owner-managed directors, the company contribution is the better option.
Why are pension contributions so tax-efficient for directors?
Because an employer pension contribution is an allowable business expense, it’s deducted from profits before Corporation Tax — saving 19% to 25% — and unlike salary it carries no 15% employer’s National Insurance.
So £60,000 paid into your pension lands in full in the pot and saves the company up to £15,000 in Corporation Tax. Taken as salary, the same £60,000 would cost the company about £9,000 more in NI, and a higher-rate director would keep only around £34,800. The pension route wins comfortably, provided you can leave the money until pension age.
Do dividends count towards my pension contribution limit?
No. Dividends are not relevant earnings, so they don’t increase your personal contribution limit. A director taking most of their income as dividends and a small salary can personally contribute only up to roughly their salary with tax relief.
This is exactly why the company route matters: an employer contribution isn’t limited by salary or dividends, so it can use the full £60,000 allowance regardless of how you pay yourself. It’s the standard solution for low-salary, high-dividend directors.
What is the tapered annual allowance?
It’s a reduced allowance for high earners. It applies only when your threshold income exceeds £200,000 and your adjusted income exceeds £260,000. The allowance then falls by £1 for every £2 of adjusted income above £260,000, down to a £10,000 floor reached at £360,000.
For directors there’s a sting: employer pension contributions count towards adjusted income, so a large company contribution can itself trigger or deepen the taper. Below £200,000 threshold income, the taper never applies, however much the company contributes.
Can I carry forward unused pension allowance?
Yes. If you haven’t used your full annual allowance in the previous three tax years, you can carry the unused amounts forward and add them to the current year’s £60,000 — potentially well over £100,000 in one year.
You must use the current year’s allowance first, and you must have been a member of a registered pension scheme in each year you carry forward from. Personal contributions are still capped at your earnings, but company contributions aren’t — making carry forward especially useful for directors banking a profitable year.
When can I access a pension I fund through my company?
From age 55, rising to 57 from 2028, regardless of whether you funded it personally or through the company. That’s the real trade-off against the tax saving: the money is locked away until then.
You can usually take 25% as a tax-free lump sum, with the rest taxed as income when drawn. Because of the lock-up, the sensible approach is to contribute only what you genuinely won’t need before pension age, and keep enough cash in the business for current needs.
What is the Money Purchase Annual Allowance (MPAA)?
The MPAA is a reduced allowance of £10,000 that applies once you flexibly access a defined contribution pension — taking taxable income, not just the tax-free lump sum. It exists to stop “recycling,” where money is withdrawn and re-contributed for a second round of tax relief.
It’s a significant and often irreversible change, so a director who’s still working and wants to keep funding a pension should be cautious about flexibly accessing one. Take advice before drawing on a pension if you intend to keep contributing. See gov.uk.
Related calculators
A director pension is one piece of how you extract value from your company. These calculators handle the salary, dividends, profit, and structure around it.
Methodology & sources
How the maths works
The calculator takes your intended contribution and tests it against the £60,000 annual allowance, adding any carry forward from the previous three years where available. For a company contribution it shows the net cost to the business as the contribution minus Corporation Tax relief, at 19% for small profits, 25% at the main rate, or the marginal rate of around 26.5% in the £50,000–£250,000 band — so £60,000 costs roughly £45,000 at the main rate. It separately checks the high-earner position: if threshold income exceeds £200,000 and adjusted income exceeds £260,000, it tapers the allowance by £1 for every £2 of adjusted income over £260,000, down to the £10,000 floor at £360,000, and notes that employer contributions count towards adjusted income. For personal contributions it caps tax relief at your relevant earnings.
These are illustrative comparisons to show how the allowance and the two contribution routes behave. Real outcomes depend on your exact salary, dividends, and other income, your company’s profit and Corporation Tax position, whether you’ve triggered the MPAA, your past three years’ contributions, and the current allowances and rates, all of which can change. The aim is to make clear how personal and company contributions differ for a director, and where the taper and lock-up bite, not to replace tailored pension or accountancy advice.
Assumptions and conventions used
- Annual allowance: £60,000
- Tapered allowance: threshold income over £200,000 AND adjusted income over £260,000; £1 reduction per £2 over £260,000; £10,000 floor at £360,000
- MPAA: £10,000 once a DC pension is flexibly accessed
- Carry forward: up to three prior years’ unused allowance
- Corporation Tax relief: 19% small profits, 25% main rate, ~26.5% marginal band
- Employer’s NI saving: 15% versus paying the same as salary
- Personal contributions capped at relevant earnings (salary, not dividends)
- Allowances and rates shown are illustrative current UK figures