↑Part of: SSAS pension

The 40% surplus-cash trap

For company directors in the £50,000 to £250,000 profit band, the combined effect of the 26.5% marginal Corporation Tax rate and higher-rate dividend tax can mean more than half of each pound of company profit is consumed by tax before it reaches your pocket. SSAS employer contributions reduce taxable profits before Corporation Tax applies, making them one of the most efficient ways to extract value from your company.
June 2026 · 5

Most company directors know their company pays Corporation Tax. What fewer realise is that for companies earning between £50,000 and £250,000 per year, the marginal rate on each additional pound of profit is 26.5% — not the headline 25%. And when that retained profit is eventually extracted as a dividend, a higher-rate taxpayer pays 35.75% again on what remains. Working through the arithmetic, more than half of each pound of profit in this band can be consumed by tax.

Understanding the marginal rate

Corporation Tax in the UK (as at June 2026) operates in three bands:

  • £0 to £50,000: 19% (small profits rate)
  • £50,001 to £250,000: marginal relief applies — the effective marginal rate on each additional pound is 26.5%
  • Above £250,000: 25% (main rate)

A company in the marginal band earning £1 more of profit retains £0.735 after Corporation Tax. If the director then extracts that £0.735 as a dividend and is a higher-rate taxpayer, they pay 35.75% dividend tax — a further £0.248. From the original £1.00 of company profit, the director receives £0.487. The government receives the other £0.513.

Why SSAS contributions are different

An employer pension contribution to a SSAS is a deductible expense. It reduces the company's taxable profits before Corporation Tax is calculated.

For a company in the marginal band, each £1 of employer pension contribution saves 26.5p in Corporation Tax. That £1 goes into the pension in full — no Corporation Tax deduction, no income tax, no National Insurance. Once in the pension, it grows free of Capital Gains Tax on investments and free of income tax on rental income. It can be drawn from age 57 (currently 55 until April 2028), with up to 25% tax-free.

The contrast with leaving cash in the company and extracting it as a dividend is stark. Both routes eventually result in money reaching the director. But the pension route reduces Corporation Tax, defers income tax, and grows the fund in a tax-efficient environment in the interim.

The practical limits

HMRC requires employer pension contributions to be "wholly and exclusively" for the purposes of the business. Large, one-off contributions are scrutinised more carefully than regular, commercially justifiable amounts. The annual pension input period limit — currently £60,000 for all pension contributions for an individual — also limits how much of the annual allowance can be used in any one tax year.

TLPI can help structure contributions that reflect the business's needs and comply with HMRC rules, including strategies for making use of carry-forward allowances from prior years where the annual allowance was not fully used.

Key points
  • Surplus cash in the £50k-£250k profit band is taxed at the 26.5% marginal Corporation Tax rate
  • Extracting that cash as a dividend adds a further 35.75% for higher-rate taxpayers — a combined rate above 50%
  • SSAS employer contributions reduce taxable profit before Corporation Tax applies
  • Each £1 of employer pension contribution saves up to 26.5p in Corporation Tax for companies in the marginal band
How much could your company save?

TLPI works with company directors to structure SSAS employer contributions that reduce Corporation Tax and build pension wealth efficiently.

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FAQs

Common questions

When a company's profits are between £50,000 and £250,000, HMRC applies marginal relief, which gradually increases the effective tax rate from 19% to 25% across that band. The marginal rate — the rate on each additional pound of profit — works out at 26.5% across the whole band.

Annual employer contributions are not capped by the annual allowance in the same way as personal contributions, but HMRC requires them to be wholly and exclusively for the purposes of the trade. The individual's annual pension input limit — currently £60,000 per year across all pension schemes — applies to the combined employer and personal contributions. Professional advice is essential to ensure any large contribution is structured correctly.

The arithmetic is most compelling for companies in the £50k-£250k profit band because of the 26.5% marginal rate. Companies above £250,000 pay 25% on all profits, so the saving is slightly lower but still significant. Companies below £50,000 pay 19%, and the dividend tax position is the same regardless.

SSAS contributions can be made from current-year profits or, in some cases, from reserves where the business has a genuine commercial justification. This is an area where the precise structure and timing matter, and TLPI can advise on the right approach for your company's specific position.

Put your company profits to work

TLPI helps directors use SSAS employer contributions to reduce Corporation Tax and build pension wealth — efficiently and within HMRC rules.

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