Work out your take-home pay
Income tax, National Insurance and net pay for any UK salary, 2026-27.
A limited company can pay up to £60,000 a year into its director's pension within the annual allowance for the 2026-27 tax year, and an employer contribution paid into a registered scheme "is disregarded in the calculation of earnings for Class 1 NICs purposes" [1] [2]. With employer National Insurance at 15% and dividends taxed at up to 39.35%, the route a director's retirement savings take has a direct cost [3] [4].
Directors of owner-managed companies sit on both sides of the transaction. They decide what the company pays, they receive the benefit, and they are usually also the people who run the payroll or instruct the accountant who does. That makes the rules on deductibility, annual allowances and relevant earnings more than technical detail: each one shapes how much of a pension contribution actually reaches the pot.
The choice is not only between salary and pension. A director can contribute personally from net pay, can have the company contribute directly, or can exchange salary for an employer contribution under salary sacrifice. Each route treats income tax, National Insurance and corporation tax differently, and each has its own limit.
This guide sets out how employer and personal contributions work for company directors, how corporation tax relief is tested, how the annual allowance, taper and carry forward apply, where auto-enrolment does and does not reach directors, and how the numbers compare in engine-checked worked examples.
Key takeaways
- Employer contributions are generally deductible for corporation tax if paid wholly and exclusively for the trade, judged on the director's whole remuneration package [5] [6].
- Employer contributions carry no Class 1 National Insurance and are not taxable on the director [2] [7].
- Personal contributions only receive tax relief up to 100% of relevant UK earnings, or £3,600 gross, and dividends do not count as relevant earnings [7] [8].
- The annual allowance is £60,000 for the 2026-27 tax year, tapered to a minimum of £10,000 for the highest earners, with unused allowance carried forward from the previous 3 tax years [1] [9].
- A one-person company with a single director is never an employer for auto-enrolment purposes [10].
- From 6 April 2029, salary sacrificed into a pension above £2,000 a year will attract Class 1 National Insurance [11].
Two ways a director's pension is funded
Pension money reaches a director's scheme either from the company, as an employer contribution, or from the director, as a member contribution. The distinction drives almost every other rule in this guide, so it is worth setting out first [7] [12].
Employer contributions from the company
An employer contribution is paid by the company directly into the scheme. HMRC's manual states that "Contributions paid by employers do not qualify for tax relief for the member", and that "No liability to income tax arises to an individual member" when the employer pays [7]. The relief sits with the company instead, as a deduction against its profits [6].
For National Insurance, an employer payment to a registered pension scheme is disregarded when Class 1 earnings are calculated [2]. HMRC's salary sacrifice guidance confirms that payments into pension schemes are not valued or reported as non-cash benefits [13].
Personal contributions from the director
A personal contribution comes out of money the director has already received. Relief is given in one of two ways, depending on the scheme [8]. Under relief at source the member pays net and the scheme claims basic-rate relief, so a £100 contribution costs the member £80 at 20% [14]. Under a net pay arrangement the contribution is deducted from gross pay before income tax is worked out [15].
Neither method reduces National Insurance on the director's salary, because a member contribution does not reduce Class 1 earnings [3] [15]. Higher and additional-rate relief on relief-at-source contributions is claimed through Self Assessment [14].
| Feature | Employer contribution | Personal contribution |
|---|---|---|
| Who pays | The company | The director, from net income |
| Where relief arises | Deduction from company profits | Income tax relief for the director |
| Class 1 National Insurance | None | Charged on the salary as normal |
| Linked to the director's earnings | No | Yes, capped at relevant UK earnings |
| Counts towards the annual allowance | Yes | Yes |
Sources: HMRC Pensions Tax Manual PTM044100 [7] and NIM02716 [2].
Corporation tax relief on employer contributions
For the company, an employer contribution is a business expense like salary. The questions are whether it is allowable, and in which accounting period the deduction falls.
The wholly and exclusively test
HMRC's Business Income Manual states that employer pension contributions are allowable "unless there is a non-trade purpose for the payment" [5]. The Pensions Tax Manual frames the same rule as a deduction for contributions incurred "wholly and exclusively" for the trade [6].
For controlling directors the test is applied to the whole remuneration package, not the pension payment in isolation. HMRC accepts contributions where the overall package is comparable with what an unconnected employee doing work of similar value would receive [5] [16]. A large single contribution for a working director of a profitable company is therefore rarely challenged on its own.
Directors' relatives and non-working family members
The position is different for relatives. HMRC's guidance states that being a close relative does not by itself disallow pay, but where "the quantum is not determined by the relationship" is not satisfied, the remuneration fails the wholly and exclusively test [17]. Pay significantly above what a third party would receive for the same work is "an indicator" of a non-trade purpose, and pension contributions form part of that package [17] [5].
Timing at cessation also matters. A contractual contribution can still be deducted when the trade ceases, but a payment with no contractual basis made as the business closes may be disallowed [18].
Paid, not accrued, and spreading of large payments
Relief is given only for the period in which the contribution is actually paid; an accrual in the accounts does not count [6]. A company that wants the deduction in a particular year must make the payment before that year end.
Exceptionally large increases are spread. If contributions in the current period exceed 210% of the previous period, the excess over 110% of the previous period is identified, and relief is spread only if that excess is £500,000 or more [19]. The spreading periods are set out in the table.
| Relevant excess | Spreading period |
|---|---|
| £500,000 to under £1 million | 2 years |
| £1 million to under £2 million | 3 years |
| £2 million or more | 4 years |
Source: HMRC Pensions Tax Manual PTM043400 [19] and PTM043100 [6].
For most owner-managed companies, contributions sit well below the £500,000 point and the deduction falls in the year of payment [19]. The value of that deduction depends on the company's profits: the small profits rate of 19% applies up to £50,000, the main rate of 25% above £250,000, and marginal relief in between [20].
Limits that apply to every contribution
Employer and personal contributions share one ceiling, the annual allowance, while personal contributions face a second limit tied to earnings.
The annual allowance, taper and carry forward
The annual allowance is £60,000 for the 2026-27 tax year, and GOV.UK confirms it covers "the total amount paid in to a defined contribution scheme" by the member "or anyone else (for example, your employer)" [9] [1]. Unused allowance from the previous 3 tax years can be carried forward, provided the director was a member of a registered scheme in those years [9] [21].
The allowance tapers for high earners. It is reduced by £1 for every £2 of adjusted income above £260,000, but only where threshold income also exceeds £200,000, and it cannot fall below £10,000 [22] [1].
| Limit for the 2026-27 tax year | Amount |
|---|---|
| Annual allowance | £60,000 |
| Threshold income for the taper | £200,000 |
| Adjusted income for the taper | £260,000 |
| Minimum tapered annual allowance | £10,000 |
| Money purchase annual allowance | £10,000 |
Source: GOV.UK, pension schemes rates and allowances [1] and PTM057100 [22].
Employer contributions matter for the taper in a way that surprises some directors. Adjusted income includes the total pension input amount for the year less member contributions, so a large employer payment can push a director over the £260,000 line even though it is not taxable income [22].
The money purchase annual allowance
A director who has already flexibly accessed a money purchase pension, for example by taking taxable income drawdown, is restricted to the money purchase annual allowance of £10,000 [1] [23]. The restriction covers employer and personal contributions alike, so it limits extraction through the company as well [9].
The annual allowance charge
Contributions above the available allowance are not prohibited; they are taxed. The charge is levied at the member's marginal income tax rate, which for the rest of the UK means 20%, 40% or 45% [24] [25]. GOV.UK states that "either you or your pension provider must pay the tax", the second option being known as scheme pays [9].
Relevant UK earnings and the dividend problem
Tax relief on personal contributions is limited to "100% of their relevant UK earnings that are chargeable to income tax", or a basic amount of £3,600 where that is higher [7] [1]. Relevant UK earnings include salary, bonuses and taxable benefits in kind; dividends are not on the list [7].
This is the central constraint for directors who pay themselves a small salary and take the rest as dividends. In an example where a director's only earnings are a salary of £12,570, personal contributions qualify for relief on no more than £12,570 gross a year, however large the dividends [7] [8]. Employer contributions are not tied to the director's earnings at all, which is why most owner-managers fund their pensions through the company [7] [5].
Worked examples for a director
The examples below were computed with a payroll engine implementing HMRC's 2026-27 routines, using tax code 1257L and National Insurance category A on the annual earnings period that applies to directors. The guide to company director payroll explains the annual method in full.
The salary at the personal allowance
A director paid a salary of £12,570, equal to the personal allowance, pays no income tax and no employee National Insurance on it [25] [3]. The company pays employer National Insurance of £1,135.50, at 15% on the slice above the £5,000 secondary threshold [3].
In a company where the director is the only employee liable for secondary Class 1 contributions, that charge cannot be offset by the Employment Allowance [26]. The salary still matters for pensions, because it creates £12,570 of relevant UK earnings for personal contributions [7]. The trade-offs between salary levels are covered in the guide to director salary and dividends.
£10,000 as salary or as an employer contribution
Take a director whose salary is £50,000 and who wants £10,000 more to reach the pension. The table compares paying a £50,000 salary, with the director then contributing personally, against paying a £40,000 salary and a £10,000 employer contribution.
| Payroll line | Salary of £50,000 | Salary of £40,000 plus £10,000 employer contribution |
|---|---|---|
| Income tax on salary | £7,484.20 | £5,484.20 |
| Employee National Insurance | £2,994.40 | £2,194.40 |
| Employer National Insurance | £6,750.00 | £5,250.00 |
Sources: income tax bands [25], National Insurance rates [3] and the Class 1 disregard for employer contributions [2].
Routing the £10,000 through the company removes £2,000 of income tax, £800 of employee National Insurance and £1,500 of employer National Insurance from the payroll [2] [3]. A personal contribution from the higher salary would recover the income tax through relief, but not the National Insurance, because member contributions do not reduce Class 1 earnings [14] [15].
Employer contributions against dividends
For a director who would otherwise take a dividend, the comparison is with dividend tax rather than payroll taxes. Dividends above the £500 dividend allowance are taxed at 10.75%, 35.75% or 39.35% for the 2026-27 tax year, and they are paid from profits that have already borne corporation tax [4] [20].
An employer contribution, by contrast, is deducted before corporation tax is calculated and is not taxed on the director when paid in [6] [7]. The trade-off is access: the money is locked in the scheme until the normal minimum pension age, which rises from 55 to 57 from 6 April 2028 [27]. When benefits are taken, a quarter can usually be drawn tax-free up to the lump sum allowance of £268,275 [28].
Auto-enrolment and directors
Auto-enrolment applies to workers, and many directors are not workers for this purpose. The Pensions Regulator's rules turn on employment contracts and on who else the company employs.
When the company has no duties
The Pensions Regulator states that "A one person company consisting of a single director is never considered an employer under automatic enrolment", whether or not that director has a contract [10]. A company with only one director with a contract of employment and no other staff has no duties either [29].
Duties arise when a director has a contract and at least one other person, director or employee, also has one [10]. A contract of employment does not have to be written, and there are no special rules for married couples or civil partners who run a company together [29].
| Company set-up | Auto-enrolment duties |
|---|---|
| One director, no other staff | None, never an employer |
| Several directors, none with a contract, no staff | None |
| Two or more directors with contracts | Duties for each director with a contract |
| Directors plus employees | Duties for employees, and for directors with contracts |
Sources: The Pensions Regulator, director exemptions [10] and directors' duties [29].
When directors are workers
Where duties apply, the employer may choose not to enrol an eligible director, but must still complete a declaration of compliance, and the director keeps the right to opt in [29]. Staff aged between 22 and State Pension age earning at least £10,000 a year must be enrolled, with a minimum employer contribution of 3% and a total of 8% on qualifying earnings between £6,240 and £50,270 [30] [31].
A director's own contributions do not have to follow the statutory minimum. A company that pays a large employer contribution for its director and the statutory minimum for its staff must still be able to show that the director's package passes the wholly and exclusively test [5] [16]. The guide to employer pension contributions covers the staff side in detail.
Salary sacrifice for directors
Salary sacrifice converts salary into an employer contribution by contract, so it produces the same payroll result as the £40,000 example above. HMRC's guidance gives the example of a £5,000 bonus sacrificed into a pension, with "No employment income tax or National Insurance contributions charge" [13].
The rules that still apply
A sacrifice cannot take cash pay below the National Minimum Wage [13]. The arrangement must change the director's contractual entitlement to pay going forward, which is why HMRC treats the sacrificed amount as an employer contribution rather than as pay [13] [2]. The guide to salary sacrifice pensions sets out the contractual steps.
The change from 6 April 2029
From 6 April 2029, earnings sacrificed for pension contributions above £2,000 a year will attract Class 1 primary and secondary National Insurance [11]. The government estimates that 7.7 million employees use salary sacrifice for pensions, 3.3 million of whom sacrifice more than £2,000, across about 290,000 employers [11].
The same policy paper states that relief on traditional employer contributions remains unchanged [11]. For a director who controls the company, that points towards setting a lower contractual salary with a direct employer contribution, rather than a sacrifice arrangement, once the change takes effect [2] [13].
Running director pensions through payroll
Most errors in director pensions come from treating the payments in the wrong place. Employer contributions belong outside taxable pay and outside Class 1 earnings; personal contributions under net pay belong in the income tax calculation but not the National Insurance one [2] [15].
HMRC-recognised payroll software for SMEs applies the annual director method and keeps employer contributions off the Full Payment Submission's taxable pay, while accountants running several owner-managed companies can set each director's salary and contribution split from a multi-client payroll dashboard. Platforms that hold remuneration data for their own users can pass pension deductions and employer contributions as separate fields through the HMRC-recognised payroll API [3] [7].
Model a director's salary and pension split
Before fixing a director's salary for the year, the take-home pay and employer cost of each salary level can be checked with the Moonworkers UK salary calculator, which applies the 2026-27 PAYE and National Insurance rules to any gross figure.
£ per month
e.g. 1257L, S1257L, BR, D0
S = Scotland · C = Wales · W1/M1 = non-cumulative
Enter a salary or hourly rate above
About this calculator
This calculator gives you a close estimate of your UK payroll deductions for 2026-27, using HMRC's exact percentage method with periodised thresholds. It handles the three tax territories, K codes with the 50% regulatory limit and its carry-forward, weeks 53, 54 and 56, the cumulative and W1/M1/X bases, student and postgraduate loans, and pension contributions on qualifying earnings. It still won't match your payslip to the penny in every case: it does not cover in-year tax code changes, payrolled benefits in kind, NI deferral across more than one employment, directors on the annual earnings period, or employer-level annual adjustments such as the Employment Allowance and the apprenticeship levy. Powered by the same engine as the Moonworkers Payroll API.
Frequently asked questions
Why might the result differ from my payslip?
This calculator uses your current gross pay and tax code to produce an estimate. K-code carry-forwards and weeks 53, 54 and 56 are handled, and the Year-to-date section reproduces a specific period exactly. What your employer may apply that this does not: a mid-year tax code change, benefits in kind processed through payroll, or NI deferral across more than one employment. For most employees on a standard tax code the difference is negligible.
What tax code should I enter?
Use the tax code shown on your most recent payslip or the PAYE Coding Notice (P2) from HMRC. If you're not sure, 1257L is the standard code for most employees resident in England, Wales, or Northern Ireland. Use S1257L for Scotland or C1257L for Wales if you pay Scottish or Welsh income tax.
Which NI category applies to me?
Most employees use Category A. Use M if you are under 21, H if you are an apprentice under 25, or C if you are over State Pension age. Your employer is responsible for assigning the correct category. If in doubt, check your payslip.
Which student loan plan am I on?
Your plan depends on when and where you studied. Plan 1 covers students who started before September 2012. Plan 2 is for English and Welsh students who started from September 2012 to July 2023. Plan 5 applies to English students who started from August 2023. Plan 4 covers Scottish students. You can check your plan at gov.uk or on your payslip.
What is the YTD cumulative PAYE mode?
HMRC's standard method calculates income tax on your total earnings to date each period, then subtracts tax already paid. If you're mid-year and want to see exactly what tax should be deducted in a specific period, expand the Year-to-date section and enter your running totals from previous periods only.
Conclusion
Director pension contributions are shaped by where the money starts. An employer contribution is relieved in the company, escapes Class 1 National Insurance and is not limited by the director's salary, provided the overall package passes the wholly and exclusively test. A personal contribution is relieved in the director's own tax position and is capped by relevant UK earnings, which for a director on a low salary and dividends is a tight limit. The annual allowance, the taper and carry forward then apply to the total from both sources.
The balance is moving rather than settled. The salary sacrifice cap from 6 April 2029, the rise in the normal minimum pension age from 6 April 2028 and the higher dividend rates all change the arithmetic for owner-managers. Directors who review the split between salary, dividends and employer contributions each year, using payroll figures rather than rules of thumb, are best placed to keep their extraction strategy efficient as those changes arrive.
Frequently asked questions
Can a limited company pay into a director's personal pension?
Yes. A company can pay directly into a director's registered pension scheme as an employer contribution, within the limits that apply to all pension savings [12]. The payment is generally deductible for corporation tax if made wholly and exclusively for the trade, and it is not taxable on the director [5] [7].
How much can a company pay into a director's pension?
There is no fixed cap on employer contributions, but contributions from all sources above the annual allowance, £60,000 for the 2026-27 tax year, trigger an annual allowance charge unless unused allowance from the previous 3 years is available [1] [9]. The contribution must also be justifiable as part of a commercial remuneration package [5].
Do dividends count for pension tax relief?
No. Tax relief on personal contributions is limited to relevant UK earnings, which cover salary, bonuses and taxable benefits but not dividends [7]. A director with a small salary can still contribute up to £3,600 gross with relief, or have the company make employer contributions, which are not tied to earnings [8].
Do employer pension contributions for a director need to go through payroll?
Employer contributions are not pay, so they carry no PAYE and no Class 1 National Insurance and are not reported as taxable pay [2] [13]. They are paid by the company directly to the scheme and recorded as a business expense in the company accounts [6].
