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When you’re running your own company, you quickly learn how to get the most from your budget.

Eeking out a higher margin. Maximising your advertising spend. Tweaking dividends vs. salary. Each small decision has big consequences for your bottom line.

You do everything you can to maximise your company’s return. The question is, why do you do all this only to lose so much to tax?

Luckily, you have a little-known ally in your quest. Your pension.

Pension Basics

Ok, let’s start at the beginning. Pensions are a confusing area and not everyone knows what they are or how they work.

A pension, put simply, is a tax-efficient way to save for retirement.

For most, when they think of pensions they think of the state pension. This is a yearly income paid to you from the government when you reach retirement age (currently set at 68).

To qualify for a state pension, you need to have paid national insurance for 35 years – at which point you can receive a maximum of just £175.20 a week – a little over £9,100 a year. For the majority, this simply isn’t enough.

A private pension refers to any type of pension that isn’t the state pension. There are two main types:

  • Workplace pensions

  • Personal pensions

If you’ve worked for an employer in the past, chances are you were enrolled in a workplace pension scheme. You may have forgotten that these old pension pots exist.

As a company director, you’ll want to know about personal pensions. A Self Invested Personal Pension (SIPP) is a type of personal pension. A SIPP is what we offer at Penfold, as it allows for flexible investing and gives you the most control over where your money is invested.

With a SIPP, you can make ‘personal’ or ‘employer’ pension contributions, or you even mix between the two. Your money is invested in a fund of your choice where it can grow tax-free, ready for when you reach 55 years old (or 57 after 2028).

Right, this all sounds great, but your retirement might be a long way off. Why should you worry about a pension now when there are so many other things you need to pay for? Two words: Tax. Relief.

Why Pensions Matter

Working for yourself leaves you short on time – it’s no surprise that planning for retirement quickly falls down your list of priorities. But what if there was a way for you to benefit from a pension, today?

Currently, it’s estimated that only 14% of the UK’s self-employed contribute to a pension. The outcome? A large proportion of those driving the UK economy simply aren’t taking advantage of the benefits of saving for their future, with a 2018 study by the Department for Work and Pensions and IPSE declaring a ”pension’s crisis” for the self-employed.

But here’s the real issue: We estimate that around £1 billion in tax relief is left unclaimed each year because not enough people know about the benefits of paying into a pension.

We’re here to break down exactly how you as a limited company director can dramatically reduce your tax bill with a pension.

How Pensions Reduce Tax

First, you’ll get to take advantage of the tax relief at the source. As a company director, any pension contributions made by your company are classed a business expense.

This means the money comes out of your account before any tax is calculated, allowing you to offset your payment against company profits. Fewer profits; less to pay in tax.

But that’s just the start.

Extra Benefits for Company Directors

As well as offsetting your company profits, pension contributions also help you save in other ways. That’s because your contributions are an allowable business expense, meaning they’re deductible from your corporation tax.

This tax rate is currently 19%, so if you paid £1000 into your pension, your company will pay £190 less in your tax bill.

You’ll have £190 more in company profits, which you can take out in dividends, salary or even pay into your pension!

You can see an example of what that looks like in this graph.

 Penfold Diagram2

How Much Could My Pension Save Me?

When you’re deciding how much to contribute to your pension each year for tax relief, it’s important to take into account your annual and lifetime allowances.

For most people, tax relief on pension contributions is capped at either their salary or £40,000 whichever is the lowest. As a company director, if you pay into your pension through your limited company you can contribute up to £40,000 each year, without the salary restriction, and still claim the 19% reduction on your corporation tax bill.

There is also a limit to the value you can save into a pension, called the Lifetime Allowance or LTA. Currently, the LTA is £1,073,100.

It’s important to bear this in mind when you’re contributing to your pension pot. Exceeding this allowance and triggering the 55% charge can cancel out any tax benefits you’ve accrued over the years!


Pensions aren’t just a long-term investment to set yourself up for the future. They’re also a fantastic way to make sure you keep more of your hard-earned profits today.

At Penfold, we’ve built the first-ever pension designed for the self-employed. It’s easy to use, flexible and only takes a few minutes to set up – no paperwork required!

Start saving and top up, change or pause payments at any time with a few quick taps. No waiting lines and no call centres. Plus, our highly trained UK-based team is available 24/7 to answer your questions in our live chat app.

We’ll even help you transfer your old pension pots into one, easy-to-manage place. It’s what we call pension peace of mind.



About Penfold

Penfold is the digital pension provider designed for modern company directors. Set up an easy to use, flexible pension in minutes using your phone or laptop.

Penfold helps thousands of directors every day by providing all the tools, calculators and information you need to make tax-efficient decisions for your future. We’ve partnered with the largest money managers in the world to make investing your pot effortless.

We are regulated by the Financial Conduct Authority and our customers’ pension holdings are protected by the Financial Services Compensation Scheme.