Contractor Pensions

It is vital to save money for your retirement and never more so than when you are a contractor – after all, no client is going to offer you a pension scheme. Fortunately, you are able to take advantage of tax breaks when saving for your pension as a contractor, so not only are you providing for yourself when you retire, you are also keeping more of your hard-earned money, out of the hands of the taxman.

This guide will give you all the information you need to start saving for your retirement.

How do I make pension contributions as a contractor?

You can make pension contributions in two ways – from your company’s income or from your own personal income.

Personal pension contributions are paid from your net income, after all applicable taxes have been deducted. However, these contributions are eligible for personal tax relief, which means that the pension provider will top up your contribution by 20%.
In addition, if you are a higher rate tax payer, you may be entitled to a tax refund when you complete your personal tax return.

Company pension contributions are paid from the company’s income, before tax. This means that you save both income tax and corporation tax on any pension contributions. It is almost always more tax efficient to make contributions directly from your company, although this isn’t always the case – your accountant will keep on top of this for you and advise on the most tax efficient way to top up your pension fund.

This guide will give you all the information you need to start saving for your retirement.

How much tax relief can I gain?

There is an annual pension contribution limit of £40,000, which can paid in without any adverse tax effect. Providing you have been a registered member of a pension scheme in the applicable years, you can use the three previous years’ annual contribution limits against pension contributions, made in the current year. To prevent abuse, you must use the current year’s annual allowance before using allowances from previous years.

When making personal pension contributions, the limit is capped at 100% of your yearly PAYE income (including the 20% additional top up).

It is worth bearing in mind the lifetime allowance – the total amount you can contribute in a pension over your lifetime, without adverse tax effects. As of tax year 2017/18 this is £1,000,000, although it is likely to change in future years.

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How much can I save?

The exact amount you can save in tax relief depends on your income through your company, the tax brackets you sit in and your IR35 status.

As an illustration, say you are in the higher rate tax bracket and have an additional £1,000 in income through your Limited Company. To draw this money as a dividend would first attract company Corporation Tax of 19%, leaving £810 and then personal Dividend Tax of 32.5%, leaving £547 in net income. If you were to pay the £1,000 into a pension scheme, you would be able to contribute the whole amount tax-free, whilst reducing your Corporation Tax bill by £190 – and it would continue to grow!

Do I need to worry about pension autoenrolment?

As the sole director of your own Limited Company – no! Automatic pension enrolment won’t apply to you. However, you will need to contact the Pension Regulator to let them know you are exempt. Don’t worry, this is a very quick process.

For more information about pensions and what they mean for your income, give one of our specialist contractor accountants a call on 01442 795 100 or email

Why Dolan Accountancy?

Dolan Accountancy was set up by Simon J Dolan, the man behind the well-known brand SJD Accountancy. With over 25 years experience in the contracting marketing, Dolan Accountancy has the heritage, reputation and credibility you can trust. Working closely with our sister company, ContractorUmbrella, it means we can offer one low cost, fixed fee package at £95 + VAT per month. This gives you the flexibility of using both our Limited Company Accountancy Services and our award winning Umbrella Service, for one inclusive cost. We don’t believe in tiered packages or hidden extra fees, instead we aim to give you everything you need, including:

  • Free Company Formation – This is where it all begins. Once you have decided on an available name, we will form your company free of charge (if using our accountancy services) and it will be ready for you to use in as little as three hours.
  • Free use of ContractorUmbrella – With changes in Public Sector IR35 Legislation we understand that sometimes you are required to contract via an umbrella company. We will keep your limited company ticking over, while you work margin free via our sister company, ContractorUmbrella.
  • A Dedicated Accountant – Your accountant will be there for any company or personal tax advice that you require. We will never outsource work, even to internal teams.
  • Free Access to FreeAgent – The founder behind the multi award winning FreeAgent platform was one of Simon’s first clients, therefore it only seems fitting that we offer all of our clients access to FreeAgent, free of charge.
  • Free Business Banking – We have decided to waive our commission so our clients can use CashPlus free of charge for the first year, saving you £69.
  • Unlimited IR35 Status Reviews – We will review all of your contracts for IR35 purposes and provide you with our professional opinion as to its status.
  • Free Registered and Director’s Service Office Address – Sometimes you just don’t want your home address on display at Companies House. When you sign up to our accountancy services, we will offer the use of our address as an alternative.
  • Your Business and Personal Taxation Needs – This includes Company Accounts, Director’s Personal Tax Return, VAT Returns, Payroll, Corporation Tax and Dividend advice, to name just a few.

If you’d like to find out more about how Dolan Accountancy can help you and your business, please give us a call on 01442 795100 or email or