Pension contributions for different self-employment types

  •  By
  •  Murray Humphrey

Sole trader. Self employed. Director of a Limited Company. A partner. There are lots of different ways to work for yourself these days, and each have different pros and cons. The different legal structures out there have different implications for pensions, too, which we’re going to dive into a little today.

As always, this blog doesn’t constitute financial advice of any kind, and always consider your own individual circumstances before making any decisions.

I’m a sole trader

A sole trader is a self-employed person who is the only owner of their business. This means that there’s no legal separation between you as the business owner and the business itself. Given that you and your business are one and the same, you can keep the profits you’ve made after tax and are personally responsible for any losses your business makes.

When it comes to saving for retirement, whenever you pay into a pension, these payments will be treated as a personal pension contribution. This means you get a bonus from the government of 25% of what you pay in. The government wants people to save for retirement, so it’s a nice little thank you. Your pension provider will handle claiming that for you.

If you pay more than 20% tax, you can also claim some additional tax relief in your self-assessment tax return on any income taxed at a higher rate. To claim this, see our blog post here.

I’m a director of a limited company

A limited company is a distinct legal entity from the business owner that can be formed whether you’re a one-person business or have employees. By forming a limited company, you serve your business as its director.

For pensions, you have two options. You can either pay:

  • as an individual and get a bonus from the government of 25% of what you pay in, or
  • your business can pay in, as employer contributions (you don’t get the tax bonus from the government in your pension in respect of your company contributions, however these payments can also have tax benefits for your company.)
  • Or you can do both (personal and company contributions).

If you choose for your company to pay in, employer contributions are normally treated as a business expense which can be offset against your company profits and as a result reduce your company tax bill.

I’m a partner in a partnership

Good for you! There’s so many benefits to working with someone to bounce ideas off. What does it mean for your pension?

As a partner of a partnership (LLP) your pension contributions will be treated as personal contributions even if it comes from your partnership business bank account. This means you get a bonus from the government of 25% of what you pay in. You may also claim additional tax relief if you pay more than 20% tax.

The details

Just a quick note: If total money paid into a pension in any given tax year is more than £60,000 (pension annual allowance), there may be a tax charge. If you are a high earner or if you have taken benefits from your pension you may have a lower pension annual allowance. You can only benefit tax relief on your pension contribution up to 100% of your earnings, or £3,600, whichever is greater.

Don’t forget: with Penfold you have complete flexibility to pause or change your payments at any time, so if you have a slower month of business you’re not locked in to paying a certain amount.

As we’ve covered in previous blogs, it’s important to understand the power of compound interest. The earlier you pay into a pension and take advantage of the bonus from the government, the more you make the most of interest.

With Penfold, you can log on to your own personal pensions dashboard at any time, and it’s really clear and easy to understand your own circumstances and if you’re saving enough for the life you want to lead in retirement.

This blog does not constitute financial advice. If you’d like to find a financial advisor for your own personal circumstances, check out With pensions, as with all investments your capital is at risk. The value of what you put in may go up as well as down

A photo of Murray Humphrey

Murray Humphrey


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