Compare the two ways money gets from company profit into your pension.

If the company pays the provider directly, the contribution is an allowable deduction in working out profit for corporation tax, provided it meets the wholly and exclusively test. No National Insurance arises on an employer contribution into a registered scheme. The full amount lands in the pot.

If you take the money out first as dividends and pay personally, it has already been through corporation tax, then dividend tax. The provider adds basic rate relief at source, and you claim anything above that through your self assessment. You end up with less in the pension for the same starting profit.

There is a second problem with the personal route that catches owner-directors specifically. Personal contributions only get relief up to your relevant UK earnings, and dividends are not earnings. If you run a low salary and take the rest as dividends, your personal relief is capped against a small number. Below that, relief is available on £3,600 gross a year regardless of earnings.

So the director on a modest salary who wants to put a meaningful amount away has one sensible route, and it runs through the company.

Your salary does not restrict what the company can contribute. Two other things do.

The wholly and exclusively test. The contribution has to be for the purposes of the trade. In practice that means the total package you take, salary plus pension plus benefits, should be defensible as pay for the work you do in the business. A working director of an established company putting a sensible sum through the pension is not controversial. A contribution for a family member with no real role in the business is a different conversation, and one HMRC has been happy to have.

The annual allowance. This is a personal limit, not a company one. It counts everything going in: your own payments, the company’s, and any other scheme. The standard allowance is £60,000 for 2026/27, with unused allowance from the previous three tax years available to carry forward. It tapers for high adjusted income, reducing by £1 for every £2 above the threshold, and it drops sharply if you have already started drawing from a defined contribution pot.

Go over the allowance and you face an annual allowance charge at your marginal rate, reported through your tax return. That is a planning failure, not a tax saving.

Relief for an employer contribution is given for the accounting period in which the company actually pays it. Not when you decide to make it, not when it appears as an accrual in the accounts.

This is where directors lose money every year. The year end comes and goes, the accounts get prepared three months later, somebody spots the profit figure, and the contribution gets made in the following period. The relief lands a year after it was wanted.

It is also why we forecast corporation tax a month before the year end rather than after it. If you know what the profit looks like with a month to go, you can decide whether a contribution makes sense while you can still act on it. After the year end you are just recording history.

One more timing point for anyone planning a large one-off. If employer contributions jump sharply from one period to the next, the deduction can be spread across several accounting periods rather than taken in full. The spreading rules only come into play on substantial increases, but a director who has never contributed and then puts in a very large sum should check the position first.

Cash flow matters too. The money has to leave the company bank account, and it does not come back.

When a new client joins, the pension question sits inside the set-up review alongside structure, VAT scheme and the salary and dividend split. They interact, so looking at any one of them alone gives the wrong answer.

The things I want to see:

• Forecast profit for the current period, and what the corporation tax looks like with and without a contribution.
• Your salary level and whether dividends are carrying most of your income.
• Pension contributions already made this tax year, including any from other employment.
• Unused annual allowance from the previous three years.
• Whether you have drawn from a defined contribution pension already.
• How much cash the business genuinely needs to keep for payroll, VAT and the tax bill itself.

That last point decides more cases than the tax does. A construction company with staff and a payroll to meet has different headroom from a procurement consultant invoicing monthly with almost no overheads. The tax arithmetic is the same for both; the sensible answer is not.

I am not a regulated financial adviser, so the choice of scheme and investments is a conversation for your IFA. The tax position, the timing and the amount the company can justify are mine.

Worth knowing, because it changes how urgent the decision feels.

Employer pension contributions currently escape National Insurance entirely. HMRC commissioned research in 2022/23 asking employers how they would respond if that exemption were removed or capped, and press reporting has repeatedly put a cap on the list of Budget options. None of that is law, and we do not plan on rumours.

What it does affect is the value of acting on a decision you have already made. If you have been meaning to start putting money through the company for two years, the risk of waiting another year is no longer only lost relief. A change to the NIC treatment would make every future contribution more expensive to the company, and it would hit directors whose company contributes on their behalf whether or not there is a formal salary sacrifice arrangement.

My honest read: contributions already made would almost certainly be safe, and future rules are nobody’s to predict. Make the decision on the numbers in front of you, then review it each year before the year end rather than after it.