Carry forward for company directors and the self-employed

Carry forward is the same rule for everyone: unused annual allowance from the three previous tax years can be added to this year's (FA 2004 s.228A; PTM055100). What differs for company directors and the self-employed is who is paying in, and so which of two separate limits bites. This guide sets out both limits, what changes for a director of their own limited company and for a sole trader or partner, and works one director's year through the engine.

Carry forward, briefly

A client can use annual allowance left unused in any of the three previous tax years, but only for a year in which they were a member of a registered pension scheme at some time. The current year's allowance is used first, then the unused allowance from the earliest of the three years, then the next.

Each earlier year's unused allowance is that year's allowance less the pension input amounts for that year, and less any of it already used in a later year, and a year in which the client was tapered is measured against the tapered figure. The rules in full are in carry forward of unused annual allowance, and reading a pension savings statement for carry forward covers where the earlier years' inputs come from.

Two limits, not one

The annual allowance is tested against the pension input amount: member and employer contributions together. Carry forward raises that allowance. It does not touch the second limit, which is on tax relief for the member's own contributions. Under FA 2004 s.190 relief is limited to the member's relevant UK earnings chargeable to income tax for the year, or the £3,600 basic amount if that is greater, and above earnings only in a scheme that operates relief at source (PTM044100).

Relevant UK earnings are employment income, income from a trade, profession or vocation carried on individually or as a partner acting personally, and certain patent income (FA 2004 s.189(2)). Dividends are not on the list, and neither is pension income. Employer contributions sit outside the relief limit altogether: PTM044100 says they do not qualify for tax relief for the member, so they are not tested against the member's earnings. The consequences of the second limit on a large personal contribution are worked through in maximum pension contribution with carry forward.

ParaplanAI keeps the two tests apart. When a member's own money purchase contributions are more than the relief limit, the engine raises a warning that relief is limited; it does not reduce the pension input amount it tests against the annual allowance, because the contributions still count in full towards the allowance.

Company directors

Many owner-managers take a small salary and the rest as dividends. Their relevant UK earnings are then the salary and any taxable benefits, so personal contributions attract relief only up to that figure. A contribution paid by the company is an employer contribution: it counts towards the director's annual allowance, and can use the director's carry forward, but it is not tested against the salary.

Whether the company gets a deduction for the contribution is a question for the company's own tax computation, not for the annual allowance. Where a contribution is allowed as a deduction, FA 2004 s.196 gives it for the period of account in which it is paid, subject to the spreading rules for large increases in ss.197–198 (BIM46010). HMRC's Business Income Manual at BIM46035 describes how it applies the wholly and exclusively test to contributions for controlling directors:

BIM46035 goes on to say HMRC accepts the test is met where a close company director's remuneration package is comparable with that paid to unconnected employees doing duties of similar value, and that where a package is excessive for the work, it looks at the whole package, not just the pension contribution. That is the company's and its accountant's question; this guide does not answer it.

The self-employed

A sole trader or an ordinary partner has no employer paying into their pension in respect of the business, so their contributions are their own and the relief limit applies to all of them. Their relevant UK earnings are the trading profits chargeable to income tax for the year, plus any employment income. Carry forward still raises the annual allowance, but in a year of large personal contributions the limit that binds can be relief rather than the allowance.

A loss-making year makes the gap wider. With no trading profit chargeable for the year, the trade adds nothing to relevant UK earnings, so relief on personal contributions falls back to the £3,600 basic amount, and then only through relief at source, unless there are other earnings. The allowance side is unaffected: a loss year in which the client was a member of a registered pension scheme still carries its unused allowance forward.

A worked year: a director using carry forward

Every result below is computed by ParaplanAI's annual allowance engine on the 2026/27 tax-year figures. The director takes a salary of £12,570, the personal allowance, and £50,000 of dividends. Their relevant UK earnings are the £12,570 salary; they have no taxable benefits. The company has paid employer contributions into a registered pension scheme for them in each of the last three years, so they were a member in each:

In 2026/27 the company pays £120,000. The taper test comes first. Threshold income is the salary and dividends, £62,570, which is not more than £200,000, so the taper cannot apply. Adjusted income, £182,570, includes the company contribution, but the taper needs both figures over their limits (PTM057100).

The contribution uses the whole 2026/27 allowance of £60,000 first, then £60,000 of carry forward, earliest year first:

All of 2023/24's unused allowance goes, part of 2024/25's, and none of 2025/26's. There is no excess and no annual allowance charge, and £30,000 of allowance is still available. The £12,570 salary played no part: the whole input is an employer contribution, so the engine raises no relief warning.

The same year with a personal contribution

Now suppose that, of the same £120,000, the director pays £20,000 personally (gross) and the company pays £100,000. The annual allowance test is unchanged, because it counts both together: the engine returns the same £150,000 total allowance, the same £0 excess and the same £0 charge. What changes is relief. The £20,000 personal contribution is more than the director's £12,570 of relevant UK earnings, so relief on it is limited to £12,570, and the engine's result carries a relief-limit warning for the adviser to review (PTM044100). Carry forward does not change that: it lifts the allowance, not the relief limit.

The taper and the MPAA still apply

Company contributions count in adjusted income, so a large one can take adjusted income over £260,000. The tapered annual allowance applies only where threshold income is also over £200,000, and threshold income leaves out employer contributions, except salary sacrifice arrangements made on or after 9 July 2015 (FA 2004 s.228ZA). A director with a high salary or large dividends can be tapered, and so can an earlier year, which then carries forward less.

If the client has flexibly accessed a money purchase pension, the money purchase annual allowance applies to their money purchase inputs, company contributions included, and unused allowance from earlier years cannot be added to it (PTM055100).

Run a client's own years on the pension carry forward calculator, which shows the earliest-year-first working line by line, and the annual allowance calculator for the charge. For planning and illustration only; this guide describes the rules and is not tax or financial advice.

FA 2004 s.228A · PTM055100 (carry forward) · FA 2004 ss.189–190 · PTM044100 (relief limit and relevant UK earnings) · FA 2004 ss.196–198 · BIM46010, BIM46035 (employer contributions) · FA 2004 s.228ZA · PTM057100 (tapered annual allowance)