If you run your own limited company, how you pay yourself and how you fund your pension are the same decision. Directors have more room to move here than employees do — and more of it goes unused.
This is a plain-English guide to how directors in Glasgow and the west of Scotland typically fund a pension through their company, what the tax treatment looks like, and how much can go in.
Can my limited company pay into my pension?
Yes. There are two routes, and most directors end up using a mix of both.
- Personal contributions come out of money you have already drawn. They get income tax relief, with further relief to claim if you are a higher-rate taxpayer.
- Employer contributions are paid straight from the company. These are normally treated as an allowable business expense, and they do not count as a benefit in kind — so there is no income tax or National Insurance for you personally on the way in.
For most director-shareholders taking a small salary and the rest in dividends, the employer route is the one worth understanding properly. It is also the one most often left alone.
Can pension contributions reduce corporation tax?
Employer pension contributions normally reduce the company’s taxable profit, which reduces its corporation tax bill. How much depends on the profits the company is making:
| Company profits | Corporation tax |
|---|---|
| Up to £50,000 | 19% — the small profits rate |
| £50,000 to £250,000 | Marginal relief applies, so the effective rate sits between the two |
| Over £250,000 | 25% — the main rate |
Two things worth knowing. The relief is not automatic — the contribution has to meet HMRC’s “wholly and exclusively” test, which in practice means it needs to be reasonable for the work you actually do for the company. And if you have associated companies, those profit thresholds are reduced.
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Book a free consultationHow much can a company pay into a director’s pension?
The annual allowance is currently £60,000. That figure covers everything going in — your own contributions and the company’s together.
The part directors most often miss is carry forward. If you have not used your full allowance in the previous three tax years, you may be able to bring that unused amount into this year. For someone who has been building the business and paying little into a pension, that can mean a much larger contribution is possible than they assumed.
There are two further limits worth being aware of, both relating to how much you can eventually take as tax-free cash rather than what goes in:
- Lump sum allowance — £268,275. The most you can normally take tax free across your lifetime.
- Lump sum and death benefit allowance — £1,073,100. Covers tax-free lump sums paid to you and to your beneficiaries.
Which type of pension?
Three come up most often for directors:
- Self-invested personal pension (SIPP) — the widest investment choice and the most control. Usually the right home for a director with a reasonable pot.
- Personal pension — a straightforward option through a pension provider, with a narrower investment range.
- Small self-administered scheme (SSAS) — worth looking at if you want the pension to be able to hold commercial property, including your own trading premises.
Which one suits depends on what you are trying to do, how much is going in, and whether property is part of the picture. It is not a decision to make off a comparison table.
Three examples
These are illustrations to show how the mechanics work. They are not real clients and not a recommendation.
A larger company, at the main rate
A sole director whose company makes £300,000 a year takes a small salary and dividends. The company pays £100,000 into her pension.
Because profits are above £250,000, corporation tax applies at 25%. The contribution reduces the company’s tax bill by £25,000, so the real cost to the business is £75,000. No income tax or National Insurance arises for her personally on the contribution.
A smaller company, using carry forward
A director whose company makes £45,000 has paid almost nothing into a pension for years. Carry forward lets him use unused allowance from the previous three tax years, so a contribution well above £60,000 may be possible in one go.
At that profit level corporation tax is 19%, so the relief is smaller — but the contribution he is able to make is much larger than he expected.
Buying the premises through the pension
A director paying rent on a unit he trades from moves his pensions into a SSAS, which then buys the premises. The business pays rent to his own pension rather than to a landlord.
This is more involved than a standard contribution and does not suit everyone, but for owner-occupiers it is worth understanding before the next rent review.
What to do next
If you are taking a small salary and dividends, have cash sitting in the company, or have old pensions from before you started the business, it is worth a conversation to find out where you stand.
We are an independent, whole-of-market firm based at Glasgow Harbour, and we work with company directors across Glasgow and the west of Scotland.
This article is for information only. It is not financial advice or a personal recommendation, and it does not take account of your circumstances. Any recommendation would follow a full assessment.
The value of investments can fall as well as rise and you may get back less than you invested. Tax treatment depends on your individual circumstances and may change in future. The tax treatment of employer pension contributions depends on them meeting HMRC’s “wholly and exclusively” requirement and is not guaranteed. Your pension is a long-term investment and you cannot normally access it until age 55, rising to 57 in 2028.