There are many benefits to being a director of your own limited company. One being you can pay more into your pension while taking advantage of all the tax benefits which come with it. But like anything, there are limits to what you can and can’t do. We’ll guide you through how to be more tax efficient when paying into your pension as a company director.

What is a company director?

A company director is appointed under the Companies Act 2006 to oversee and manage the business on behalf of its shareholders. If you’re a company director, you’ll have to think of everything from the short-term to the long-term – each and every decision you make is critical. So, it’s important to know the business inside and out. Great if it’s your own limited company you’re running!

On top of being the eyes and ears of the business, you’re also in charge of ensuring all the legal bits are taken of, such as sending confirmation statements and annual accounts to Companies House on time.
 

Do directors need to automatically enrol into a company pension?

It’s a legal requirement for employers to automatically enrol eligible workers into a workplace pension scheme. Things can get a little complicated for company directors though, and you could be exempt from auto-enrolment even with an employment contract. It basically boils down to whether you’re classed as a worker or not.

This can change quite quickly though. For example, if you have two directors with employment contracts, they will need to be auto enrolled into a workplace pension just like any other employees who are eligible.

Can directors set up a workplace pension even if they’re exempt?

Absolutely. You don’t need to set up a workplace pension if you’re considered exempt from automatic enrolment, but you can. There are different types of pension scheme available, so it’s well worth a chat with your accountant about this.

How do directors make pension contributions?

As a director you can make pension contributions as an employer through your limited company, personally from your own salary, or a combination of the two:

• The contributions your company makes as your employer won’t be subject to employer’s National Insurance. They’re also a business expense, so the company can claim tax relief on them and reduce its Corporation Tax.
• Most pension providers will automatically claim 20% tax relief each time you make contributions from your salary as an employee, and add this to your pension pot. If you pay more than the basic 20% rate, then you’ll be able to claim back the difference between the basic rate and your tax rate when you submit your tax return.

Dividends don’t count as part of your salary though, so you can’t contribute them into your pension as part of your salary.

Is there a limit to how much I can contribute into a pension before paying tax?

Yes, the maximum total amount you and your employer can pay into your pension pots in the 2026/27 tax year before you have to pay tax is £60,000 using the standard annual allowance. This allowance tapers down by £1 for every £2 you earn over £200,000 – down to a minimum of £10,000.

You can receive tax relief on private pension contributions that are worth up to 100% of your annual earnings if they’re within this threshold, which is either given automatically, or you’ll need to make a claim depending on which pension scheme you’re with.

The tax relief you receive depends on the tax rate you pay. For instance, if you’re a 40% higher rate taxpayer, a £100 contribution would cost you just £60 because the government will pay £20 into your pension immediately, followed by an additional £20 when you reclaim it on your tax return.

There’s no limit to how much you can contribute through your company although this cannot exceed your company’s annual profits. Doing so could raise a few eyebrows!

 
Need help with your limited company? Give us a call on 020 3355 4047, or get an instant quote.