Pension Contribution Optimiser
Model employer pension contributions from your UK limited company. See the corporation tax saving, real cost to the company, and the advantage over taking the same money as a dividend.
Your inputs
Salary + dividends + employer pension contributions
In your pension
£30,000
Real cost to the company after corp tax saving: £22,050
The tax effect
- Corp tax without pension
- £32,669
- Corp tax with pension
- £24,719
- Corp tax saved
- £7,950
- Marginal corp tax rate at this profit
- 26.5%
Versus taking the same money as dividend
- Net dividend if taken instead
- £20,164
- In pension via employer contribution
- £30,000
- Pension advantage
- +£9,836
The pension money is locked until age 55 (rising to 57 in 2028). 25% can be taken tax-free at retirement; the rest is taxed as income.
How this works
An employer pension contribution from your limited company is an allowable business expense, so it reduces your taxable profit and therefore your corporation tax. The full amount lands in your pension, no income tax, no NI. The calculator models the corporation tax saving, then compares the value of the contribution to what you'd net if you took the same money as a dividend instead.
It applies the 2025/26 annual allowance of £60,000 and the taper for adjusted income above £260,000. Carry-forward is not modelled, speak to us if you want to use unused allowance from previous years.
Frequently asked questions
- How is an employer pension contribution treated for tax?
- An employer pension contribution from your limited company is treated as an allowable business expense, it reduces your taxable profit and therefore your corporation tax bill. It's not subject to employer NI, employee NI or income tax at the point of contribution. The whole amount lands in the pension. The trade-off is that the money is locked in until you reach pension access age (currently 55, rising to 57 in April 2028).
- What's the annual allowance for 2025/26?
- £60,000 gross across all your pensions (employer + personal). If your 'adjusted income' (broadly salary + dividends + employer pension contributions + other income) exceeds £260,000, the annual allowance tapers by £1 for every £2 over the threshold, down to a floor of £10,000 at £360,000+. You may also be able to use carry-forward of unused allowance from the previous three tax years if you've been a pension scheme member.
- Is the contribution wholly and exclusively for business purposes?
- For a director who is genuinely working in the business, HMRC generally accepts an employer pension contribution as wholly and exclusively for business if it's in proportion to the work done, i.e. it could reasonably be part of an overall remuneration package. Very large contributions for a non-working spouse or in excess of total package norms can be challenged.
- Better to put more into salary or into pension?
- For most agency directors paying themselves a small salary plus dividends, an employer pension contribution is more tax-efficient than the equivalent dividend at higher rate. The contribution avoids 33.75% dividend tax (or 39.35% additional) and saves corporation tax at 25%, while landing 100p of every £1 in your pension. The cost is the time delay until you can access the money.
Want a full extraction strategy that includes pensions?
Book a free call. We will model your real position, salary, dividends, employer pension, retained earnings and exit timing, to find the most efficient mix for the next three to five years.
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