A worked example
The company's £150,000 profit is before the pension contribution. The director has no other pension saving and threshold income under £200,000, so the full £60,000 annual allowance applies and no carry-forward is needed. The page compares two ways of putting the same £40,000 into the pension in 2027/28.
Route A: the company pays £40,000 into the pension from its own funds
| Year to 31 March 2028 | Before the Budget | After the Budget | Difference |
|---|---|---|---|
| Corporation tax on £150,000 without the contribution: £37,500 − 3/200 × £100,000 | £36,000.00 | £36,000.00 | |
| Corporation tax on £110,000 after deducting the £40,000 | £25,400.00 | £25,400.00 | |
| Corporation tax saved (26.5% marginal rate) | £10,600.00 | £10,600.00 | £0.00 |
| Net cost to the company of £40,000 in the pension | £29,400.00 | £29,400.00 | £0.00 |
| Income tax and National Insurance on the contribution | £0.00 | £0.00 | £0.00 |
| Touched by the £2,000 cap from April 2029 | no | no |
Route B: the same £40,000 by salary sacrifice, salary £52,570 cut to £12,570
| 2027/28 | Before the Budget | After the Budget | Difference |
|---|---|---|---|
| Employer's National Insurance not paid on the £40,000, 15% | £6,000.00 | £6,000.00 | |
| Employee's National Insurance not paid: £37,700 at 8% + £2,300 at 2% | £3,062.00 | £3,062.00 | |
| Income tax not paid: £37,700 at 20% + £2,300 at 40% | £8,460.00 | £8,460.00 | |
| Tax and National Insurance on the sacrificed £40,000 in 2027/28 | £0.00 | £0.00 | £0.00 |
| From 6 April 2029: employer's National Insurance on the £38,000 above the cap | £5,700.00 | £5,700.00 | £0.00 |
| From 6 April 2029: employee's National Insurance on the £38,000, depending on which £2,000 slice the rules relieve | £2,902.00 to £3,022.00 | £2,902.00 to £3,022.00 | £0.00 |
The £52,570 salary for route B is an illustration, chosen so the same £40,000 goes into the pension. The 2029 figures use the National Insurance thresholds, which stay at their 2026/27 levels until 2030/31.
When it takes effect
Nothing new from this Budget. The £2,000 cap on salary sacrifice starts on 6 April 2029, as announced at the Autumn Budget 2025; how the £2,000 is measured is left to secondary legislation. Already law and not changed by this Budget: from 6 April 2027 most unused pension funds and death benefits count towards the estate for inheritance tax.
Who it doesn't affect
A director whose company pays pension contributions straight from its own funds, rather than by salary sacrifice: the cap does not apply to those contributions, and the Budget did not change the annual allowance or corporation tax relief on them.
Where this comes from
- Budget 2026 (HM Treasury), Table 6.1 (policy decisions): no measure on the pension annual allowance or the salary sacrifice cap
- Salary sacrifice reform for pension contributions from 6 April 2029 (HMRC tax information and impact note, Budget 2025): salary sacrificed into a pension above £2,000 a year bears employee and employer National Insurance from 6 April 2029; ordinary employer contributions keep their National Insurance relief
- Budget 2026: Overview of Tax Legislation and Rates (HMRC), Annex A, Pensions tax relief: annual allowance £60,000 and the £260,000 adjusted income limit for the taper, for 2026/27 and 2027/28
- Budget 2026 OOTLAR, Annex A: corporation tax at 25% and 19% with the £50,000 and £250,000 limits and 3/200 fraction for the year from April 2027; National Insurance for 2027/28 (employer's 15% above £96 a week, employee's 8% from £242 to £967 a week and 2% above); income tax bands
- Budget 2026 OOTLAR, section 2.1: National Insurance limits and thresholds, apart from the Lower Earnings Limit, kept at 2026/27 levels until 2030/31
- Budget 2026 OOTLAR, section 1.27: most unused pension funds and death benefits come within the estate for inheritance tax from 6 April 2027, as legislated in Finance Act 2026
- HMRC Pensions Tax Manual PTM043100: employer contributions deducted in the period they are paid
- Pension annual allowance (GOV.UK): tapered where threshold income is over £200,000 and adjusted income over £260,000
Every figure on this page comes from the Budget documents published on GOV.UK on , and was checked by Alan Davidson FCA. Last updated . It is general information, not advice on your own position.