How paying into your pension from your business could save you up to £128,503
Running a business can be very demanding and often requires you to make multiple important decisions on a daily basis.
As a result, financial and tax planning can sometimes take a back seat to more pressing matters. However, some of the most effective strategies require relatively little effort and can deliver substantial tax savings over time.
One such strategy is making pension contributions through your business, which can help improve both personal and corporate tax efficiency while supporting longer-term wealth planning.
Read on to find out how paying into your pension from your business could save you over £128,000.
Making pension contributions from your company can mitigate tax for your business
Making pension contributions through your company can be one of the most tax-efficient ways to extract value from the business, because of the treatment of Corporation Tax and National Insurance (NI).
Employer pension contributions are typically treated as an allowable business expense, provided they pass HMRC’s “wholly and exclusively” test.
This means they can be deducted from your company’s profits before Corporation Tax is applied, unlike personal contributions made from your salary.
In the 2026/27 tax year, Corporation Tax stands at:
25% for profits over £250,000
19% for profits under £50,000
A tapered rate for profits in between.
By making pension contributions directly from the business, you effectively lower the amount of profit subject to these rates. As a result, paying into your pension from your company can reduce the business’s tax liability and improve overall efficiency.
Moreover, while salaries are liable for employer NI, pension contributions are not. This means you can avoid NI altogether when paying into a pension instead of taking the payment as income.
Tax-efficient pension contributions from your company are not limited by your earnings
When you contribute to your pension, you typically receive tax relief at your marginal rate of Income Tax. However, the amount you can contribute and still benefit from this relief is capped by the Annual Allowance.
For most individuals in the 2026/27 tax year, the Annual Allowance is £60,000 or 100% of your earnings, whichever is lower. It’s also possible to carry forward any unused allowance from the previous three tax years, potentially allowing for larger contributions.
However, the rules for employer pension contributions made from a business are different, and they are not tied to your personal earnings. This means your company can contribute up to £60,000 a year (or more using carry forward), even if your salary is lower.
This approach can be particularly effective if you take a mix of salary and dividends. By structuring your income in this way, your overall earnings can remain the same while reducing your Income Tax liability, since dividends are generally taxed at lower rates than salary. Even with a lower salary, you may still be able to make pension contributions of up to £60,000 and benefit from tax relief.
Maximising your pension contributions from your business could save you up to £128,503
If you maximise your Annual Allowance and make full use of carry forward, it may be possible to contribute up to £240,000 into your pension. However, the Annual Allowance tapers once your income exceeds £200,000, so the amount you can contribute tax-efficiently may be lower in practice.
Even so, the potential savings can be significant. For example, if your company contributes £200,000 into your pension, the total tax saving could be as much as £128,503, compared with taking the same amount as dividends.
This is based on:
£50,000 saved in Corporation Tax (25% of £200,000)
No Income Tax or NI on the employer contribution
Approximately £78,503 saved in Dividend Tax (at 39.35% on dividends above the £500 allowance).
Combined, this results in a total potential saving of £128,503.
Of course, this is an illustrative example, and the exact savings will depend on your individual circumstances and eligibility.
A financial planner can help you structure your pension contributions efficiently
A financial planner can help you structure your pension contributions in the most tax-efficient way for both you and your business.
This includes assessing how much you can contribute under the Annual Allowance and carry forward rules, and determining the optimal split between salary, dividends, and employer pension contributions.
A financial planner can also help align your pension strategy with your personal and business plans. This can help ensure you balance your long-term retirement goals with your short-term income needs and business objectives.
To speak to a financial planner, get in touch.
Email info@mlpwealth.co.uk or call us on 020 8296 1799.
Please note
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.