What Is SIPP?
By PayMetric Labs Research Desk
Short answer
A SIPP (Self-Invested Personal Pension) is a UK pension wrapper that lets you choose your own investments, and for limited company contractors, receive employer contributions directly from the company with no Income Tax or National Insurance.
For an outside-IR35 contractor, an employer SIPP contribution paid directly from your limited company is one of the most tax-efficient ways to extract money from the business. The contribution is a deductible business expense (reducing Corporation Tax), and because it goes in as an employer contribution rather than salary or dividend, it avoids Income Tax, employee and employer National Insurance, and dividend tax entirely.
Compare that to paying yourself the equivalent as a dividend: you'd pay Corporation Tax on the profit first, then dividend tax on what's left, before it even reaches your pension. Routing the same amount as a direct employer SIPP contribution can leave you with meaningfully more in your pension for the same pre-tax company profit.
The 2026/27 annual pension allowance is £60,000 (or 100% of earnings if lower), and unused allowance from the previous three tax years can often be carried forward. SIPPs also give you control over investment choices, unlike some workplace pensions where the fund range is fixed by the employer.
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This glossary entry is for general information only and does not constitute financial, tax, or legal advice. Rates and thresholds shown reflect current published guidance and may change.