If you run your own company, chances are you take money out through dividends or by leaving profits in the business. While this might feel like the simplest approach, it often means you're paying more tax than you need to - and missing out on one of the best ways to secure your financial future.
Here's a Smarter Way for You to Save Money
The good news? You're not legally required to have a workplace pension as a Director-only company.
Setting one up could unlock thousands of pounds in tax and build a retirement fund for your future. Organising a pension can be made easy with GetPenfold: a simple, flexible digital pension built for directors.
Here's why pensions make so much sense for you:
- Your company's pension contributions are treated as a business expense, cutting your Corporation Tax bill (currently up to 25%).
- Money paid into your pension avoids Income Tax, National Insurance, and Dividend Tax.
- Compared with taking dividends, using pensions often more than doubles the benefit you keep.
- Everything inside your pension grows tax-free until you retire.
Curious how much you could actually save? Try out our model and see for yourself.
Example
If your company pays £20,000 into your pension, it reduces taxable profits by £20,000 - instantly saving £5,000 in Corporation Tax. The full £20,000 goes into your pension, ready to grow for the future.
Now let's compare dividends with a pension contribution of £20,000 for a taxpayer in 2025/26.
Current Approach (Without Pension Contribution)
- Company Profit: £40,000
- Pension contribution: £0
- Taxable Profit: £40,000
- Corporation Tax @ 19%: (£7,600)
- Amount available: £32,400
- Tax on extraction (personal tax): £2,791 (8.75%)
- Net value to Director: £29,608
- Corporation Tax saved: £0
- Total benefit to Director and Ltd: £29,608
Our Approach (With Pension Contribution)
- Company Profit: £40,000
- Pension contribution: £20,000
- Taxable Profit: £20,000
- Corporation Tax @ 19%: (£3,800)
- Amount available: £36,200
- Tax on extraction (personal tax): £1,373 (8.75%)
- Net value to Director: £34,826 + growth
- Corporation Tax saved: £3,800
- Total benefit to Director and Ltd: £38,625
By choosing our approach, you'd gain £9,017 on a contribution of £20,000. The only catch is that you can't access pension funds until at least age 55 (57 from 2028) - so pensions give you more later, while dividends give you cash now.
Get tailored financial advice from our team at Optimyze today.
Our pension partner is FCA regulated and trusted by 5000+ UK businesses.
