How the saving works
When your company pays into your pension, the contribution is normally an allowable business expense. It comes off your taxable profit before corporation tax is worked out, so the company pays tax on a smaller profit. The saving is simply the difference between the corporation tax on your profit before the contribution and the tax on your profit after it.
Why the saving rate changes: corporation tax isn't a flat rate. The rate your contribution saves at depends on where your profit sits, which is why the effective saving rate above might be 19%, 25%, or 26.5%.
The three rates
- 19% if your profit stays under £50,000 (small profits rate)
- 25% if your profit stays over £250,000 (main rate)
- 26.5% on profit within the £50,000 to £250,000 marginal relief band, higher than the headline main rate
This is why a contribution is at its most powerful when your profit is in the marginal relief band: every pound you contribute there saves tax at 26.5%. And if a contribution pulls your profit down across the £50,000 line, part of the saving is at 26.5% and part at 19%, which the calculator blends for you.
The allowance still applies
The tax saving is real, but it only works within your pension annual allowance. For 2026/27 that's £60,000 across all contributions and relief, or more if you have unused allowance to carry forward. Contributing beyond your allowance triggers a charge that cancels out the benefit, so the contribution figure you enter above should always be checked against your actual available allowance first. If you run a limited company, our guide on company pension contributions and corporation tax explains the allowance rules in full, and our dividend and corporation tax calculator shows your wider extraction picture.