How I paid into my SIPP as a business expense and why most small business owners don’t know they can
This week I moved money from my business account into my Self-Invested Personal Pension (SIPP) as an employer contribution.
It counts as a business expense, which means it reduces my corporation tax bill.
And that money is now invested for future me instead of sitting in HMRC’s bank account.
It’s one of the most tax-efficient moves a limited company director can make, yet most of the small business owners I know have never been told they can do it.
Many accountants don’t suggest it unless you specifically ask.
How it works in plain English
When your company makes an employer pension contribution:
- The payment is made straight from the business bank account to your pension
- It’s treated as a deductible expense in your accounts
- It reduces the company’s taxable profit, so you pay less corporation tax
- It doesn’t go through payroll, so there’s no National Insurance on it
You can do this even if your company is just you.
But what if you already owe HMRC?
A question I hear fairly regularly is: “Should I put money into my pension if I still owe HMRC for a previous year?”
It’s always personal, so it’s worth talking this through with your accountant. Paying off old tax debt is done from post-tax company profits – it won’t reduce last year’s corporation tax bill. It simply clears the balance you already owe.
Think of it this way: if your company made £50,000 profit last year, corporation tax was calculated on the full £50,000. Paying HMRC now doesn’t change that calculation, it’s money already taxed.
But you can still reduce this year’s taxable profit by making employer pension contributions before your year end. Even if it means taking a little less home right now, you’re moving money into a tax-advantaged pot for your future, and keeping more of it out of HMRC’s hands.
So you might decide to:
- Clear any urgent HMRC debt (especially if interest or penalties are adding up)
- Still make a pension contribution this year to bring down the current year’s liability
Two separate pots, two separate strategies:
- Last year’s tax bill – can’t be changed, just needs paying
- This year’s profits – still time to reduce with allowable expenses like employer pension contributions
Example:
For illustration, let’s say your company is paying corporation tax at 19%.
If you expect £50,000 profit this year, your CT bill would be £9,500.
A £5,000 employer pension contribution before year end would reduce taxable profit to £45,000 and the CT bill to £8,550 – £950 less to HMRC, plus £5,000 invested for your future.
(If your company is in the higher tax bands, the saving could be even bigger.)
Why it matters
For every £1,000 my company puts into my pension, my corporation tax bill drops by c.£190 (based on the 19% rate).
That’s £190 staying with me and £1,000 invested for my future.
Everyone’s circumstances are individual, so please talk through with your accountant what is the best route for you.
This is something I wish more business owners knew, because it’s one of the most powerful ways to turn business profits into long-term wealth.
If you’re a company director with profits left in the business, it’s worth asking your accountant whether this could work for you before your year end.
Ready to turn your business profits into personal wealth?
I work with business owners 1:1 to help you feel calm, clear, and confident about your money.
Across 90 days we’ll tackle both the practical steps and the mindset shifts that make your wealth grow, so you’re not just working hard, you’re building something lasting.
You can learn more about my 90-day coaching package here.
Or if you’d like to explore how we could work together, book a free discovery call.