Your company can pay up to £60,000 into your pension in 2026/27 without an annual allowance charge, and more than that if you have unused allowance from the previous three tax years. Carry forward reaches back to 2023/24, 2024/25 and 2025/26, so a contractor who contributed nothing across those years and was a pension scheme member throughout has up to £240,000 available in a single year. The allowance is measured across every contribution into every scheme, employer and personal together.
How much allowance do you actually have this year?
Start with £60,000 for the current year, then add what you did not use in each of the three previous years. Work out each prior year separately, because the allowance is used in a fixed order: the current year first, then the earliest of the three carry forward years, then the next, then the most recent. Anything left in the oldest year when the tax year ends is lost, because the window only ever looks back three years.
Here is the arithmetic for an example contractor. The figures are illustrative and derived only from the rules above.
| Tax year | Annual allowance | Contributions paid | Unused, available to carry forward |
|---|---|---|---|
| 2023/24 | £60,000 | £10,000 | £50,000 |
| 2024/25 | £60,000 | £20,000 | £40,000 |
| 2025/26 | £60,000 | £30,000 | £30,000 |
| 2026/27 (current) | £60,000 | to be decided | n/a, current year |
Total available in 2026/27 is £60,000 plus £50,000 plus £40,000 plus £30,000, which is £180,000. If the company pays £90,000, it uses the £60,000 current-year allowance first, then £30,000 of the 2023/24 figure. The remaining £20,000 from 2023/24 lapses on 5 April 2027; the 2024/25 and 2025/26 amounts stay available for another year or two.
Why is the contribution not limited by your salary?
Because the company is paying it, not you. A personal contribution attracting relief is capped at 100 per cent of your relevant UK earnings for the year, and dividends do not count as relevant earnings. A director drawing £6,708 of salary and the rest as dividends therefore has £6,708 of personal headroom and no more. An employer contribution from the company has no earnings cap at all. Its limits are the annual allowance, carry forward, and the wholly and exclusively test that applies to any company expense.
That is the whole reason the employer route dominates contractor pension planning. The detail of the deduction and the paid basis sits in our guide to employer pension contributions from a contractor company, and the relief mechanics in contractor pension tax relief.
What does the contribution save the company?
An employer contribution is deductible against company profit on a paid basis, and carries no employer or employee National Insurance on either side. There is no income tax on you when it goes in, subject to the allowance.
Take the same example contractor, with £150,000 of profit before any pension contribution. A £90,000 employer contribution leaves £60,000 of taxable profit. Every pound of the £90,000 removed sits above the £50,000 small profits limit, in the band where marginal relief makes the effective rate 26.5 per cent, so the corporation tax saved is £23,850. The same £90,000 taken as a dividend instead would bear corporation tax first and then dividend tax at 10.75 or 35.75 per cent depending on the band. Those rates are set out in dividend tax rates for contractors.
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When is your allowance less than £60,000?
Two situations cut it. The first is the taper. Where your threshold income exceeds £200,000 and your adjusted income exceeds £260,000, the allowance falls by £1 for every £2 of adjusted income above £260,000, down to a floor of £10,000. Both tests have to be met, so a director whose threshold income stays under £200,000 keeps the full allowance whatever the adjusted figure. Employer contributions are added back when working out adjusted income, which means a large company contribution can drag you into the taper by itself.
The second is the money purchase annual allowance. If you have flexibly accessed a defined contribution pension, taking taxable income from drawdown or an uncrystallised funds lump sum, your allowance for money purchase savings drops to £10,000 a year, and unused money purchase annual allowance cannot be carried forward. Taking the tax-free lump sum alone and leaving the rest untouched does not trigger it.
Which years can you actually reach back to?
Only years in which you were a member of at least one UK registered pension scheme. Membership is the test, not contribution, so a dormant scheme from an old employment keeps a year alive even if nothing went into it. A year with no scheme at all produces nothing to carry forward. If a prior year was itself tapered, the amount you carry forward is the tapered allowance that applied in that year, not the full £60,000. Your annual benefit statements from each provider are the source for all of this.
What should you check before the company pays?
Confirm scheme membership in each of the three prior years, add up the contributions actually paid in each year rather than accrued, check whether the money purchase annual allowance has been triggered and on what date, and work out threshold and adjusted income for the current year including the contribution you are planning. Then check the company can genuinely fund the payment out of profit, since the wholly and exclusively test and the paid basis both bite. Run those figures against your annual benefit statements before a large one-off contribution leaves the company account, and the wider extraction picture sits in our guides to the salary and dividend split and to contractor pension schemes and SIPPs.