Self-Employed Pension Case Study 2026/27: Cutting Tax With a SIPP

The setup

Priya is a self-employed graphic designer. For the 2026/27 tax year her trading profit after allowable expenses is GBP 60,000. She has no other income and wants to know whether paying into a SIPP is worth it.

Because she is a sole trader, she pays Income Tax and Class 4 National Insurance on her profit. There is no employer to make pension contributions for her, so any retirement saving comes from her own pocket.

Her tax position before any pension contribution

Using the rUK (England, Wales and Northern Ireland) figures for 2026/27:

• Personal Allowance: GBP 12,570
• Basic rate 20% on the next GBP 37,700 (up to GBP 50,270)
• Higher rate 40% on profit between GBP 50,270 and GBP 60,000

Her Income Tax works out as:

• 20% x GBP 37,700 = GBP 7,540
• 40% x GBP 9,730 = GBP 3,892
• Total Income Tax = GBP 11,432

Her Class 4 NI:

• 6% x (GBP 50,270 - GBP 12,570) = 6% x GBP 37,700 = GBP 2,262
• 2% x (GBP 60,000 - GBP 50,270) = 2% x GBP 9,730 = GBP 194.60
• Total Class 4 NI = GBP 2,456.60

Adding a SIPP contribution

Priya decides to pay GBP 8,000 net into a SIPP. Her provider claims 20% basic-rate relief at source, topping the contribution up to GBP 10,000 in the pot.

The GBP 10,000 gross contribution extends her basic-rate band. The part of her income that was taxed at 40% (the GBP 9,730 above GBP 50,270) now mostly falls back into the 20% band. She claims the higher-rate relief through her Self Assessment return.

• Higher-rate relief reclaimed: 20% x GBP 9,730 = GBP 1,946
• Plus 20% basic relief already added in the pot: GBP 2,000

So a GBP 10,000 pension pot has cost her GBP 8,000 net, and she reclaims a further GBP 1,946 against her tax bill. The effective cost of GBP 10,000 saved for retirement is around GBP 6,054.

The Class 4 trap to remember

Here is the key point many sole traders miss: a personal pension contribution does not reduce Class 4 NI. Class 4 is charged on the trading profit figure, before personal pension payments. So Priya still pays the full GBP 2,456.60 of Class 4 NI.

This is different from an employee using salary sacrifice, where both Income Tax and National Insurance fall. As a sole trader Priya only saves Income Tax.

What to weigh up

• A SIPP gives you the same tax relief as a workplace pension, but you arrange it yourself.
• Personal contributions are limited to the lower of GBP 60,000 (the annual allowance) and 100% of your relevant UK earnings.
• Higher-rate relief is not automatic; you must claim it on your Self Assessment return.
• Class 4 NI is unaffected by personal pension contributions.
• Money in a pension is generally locked until at least age 55 (rising to 57 from April 2028).

For sole traders with fluctuating profits, carry forward of unused annual allowance from the previous three years can let you make a larger contribution in a good year.

To model your own numbers, try the pension contribution calculator and the income tax calculator on calchub.uk, and confirm the current rules and reliefs on gov.uk before you act. This article is general information, not financial advice.