Want to cut your corporation tax bill while building your pension? Making pension contributions through your limited company is one of the most powerful tax-saving moves available to directors.
Why it works
- Fully tax-deductible – Contributions reduce taxable profits, cutting corporation tax.
- Significant tax savings – At a 25% tax rate, every £1 contributed saves up to 25p in tax.
- Boosts retirement wealth – Moves money into your pension tax-free instead of paying HMRC.
Supercharge savings with carry forward allowances
The annual pension allowance is £60,000, but if you haven’t used all of it in the last three years, you can carry forward unused allowances from any period in which you had a registered pension scheme open.
This allows for a much larger contribution in a single year, as shown below:
The maximum potential contribution
| Tax year | Annual allowance |
|---|---|
| 2021/22 | £40,000 |
| 2022/23 | £40,000 |
| 2023/24 | £60,000 |
| 2024/25 | £60,000 |
| Total potential contribution available per director | £200,000 |
| Potential corporation tax saving (at 25%) | £50,000 |
Key timing and planning considerations
- Use it or lose it
– Unused allowances from 2021/22 must be used by 5 April 2025, or they will be lost.
– Allowances are applied on a first-in, first-out basis, meaning the oldest is used first. - Justifying pension contributions for tax relief
– Must be wholly, exclusively, and necessary for the purposes of the business.
– Commercially justifiable as part of the director’s total remuneration package.
– Proportionate to the director’s role and duties to avoid HMRC scrutiny. - Make payments on time
– Contributions must be paid before your company’s year-end to qualify for relief in that period.
– Simply committing to pay isn’t enough – the money must leave your company bank account. - Tapered allowance rules
– If total income exceeds £260,000, the annual pension allowance may reduce, limiting how much can be contributed.
Act now – don’t leave money on the table
A well-planned pension contribution slashes your tax bill and grows your wealth. Let’s structure your contributions before your year-end to maximise your tax relief. Get in touch today!
