Pay director/shareholder wife pension in lieu of a salary?

[Cirrus]

Thanks Sue, from everything I have seen so far (and I'm still learning obviously) pensions may have something to do with IR35 if you use them as a method of tax planning.

Company Pension contributions appear to be deemed as within the 95% salary

I'm not quite sure what you are saying. My understanding - as a barrack room lawyer like everyone on this channel - is you can always have the same benefits that a PAYE employee has. They can have pension up to the limits, tax free. So you can as well.

[Fred Bloggs]

OP, I think you're basically on the right track here. I run a similar strategy though me and Mrs Bloggs each take £5k divis. I would be wary about large pension contributions to Mrs OP until she is contributing fully to the business. Until she is, I'd be wary about large sums paid into a pension for her.

BTW, you will find the forum much more pleasant to use if you put one or two posters into your ignore list.

[ContrataxLtd]

Hi AndyT

Lots of good information in the thread already but a few things I'd probably mention if advising (based on the facts given).

1. IR35 - You should definitely get your contract & working practices reviewed in relation to IR35, you may not be inside so worth checking. If you are there are a few things that can be done to mitigate this to an extent;
2. Pension - An allowable expense when calculating the deemed payment for IR35 purposes so if you are inside well worth a consideration. However, contributions to your wife's pension wouldn't be an allowable expense in your IR35 deemed payment.
3. Benefit's in Kind - These sometimes become more attractive if inside IR35 but this can often be a long term solution to a short term problem i.e. if next contract is outside IR35 then you probably aren't efficient anymore.

If you are outside IR35 then you have much greater flexibility and can probably stick some money in your pension, some in your wife's (in relation to a reasonable remuneration package etc.) and take some dividends between you.

As others have said, shortlist a few accountants and give them a call to discuss further,

Martin
Contratax Ltd

[Qdos Contractor]

The company can meet pension contributions on behalf of the female director & those contributions will be available for CT relief but only in cases where the contribution is part of a remuneration package paid wholly and exclusively for the purposes of the trade.

Whether there is a non-trade purpose for the payment will depend upon the facts of the individual case but where there is a non-trade purpose for the payment, then the payment or part thereof is disallowable for C.T purposes.

One situation where all or part of a contribution may not have been paid wholly and exclusively for the purposes of the trade is where the level of the remuneration package is excessive for the value of the work undertaken by that individual for the employer. In this situation HMRC will consider whether the amount of the overall remuneration package, not simply the amount of the pension contribution, was paid wholly and exclusively for the purposes of the contractors’ trade.

On occasion an employer may make an increased pension contribution on the basis that a scheme is underfunded. In this situation HMRC will not only compare contributions between periods but also the history of remuneration and contributions, before challenging a deduction based solely on annual comparatives.

Care must also be taken not to exceed the annual allowance for personal tax purposes which is £40K. This is the maximum that you (personal + company contributions) can contribute to all pensions in one year, without incurring a tax charge. There are three exceptions to this, in particular, where someone has ‘adjusted income’ in excess of £150K (this includes salary & dividends). In this case, the annual allowance is tapered down.

[ASB]

Even if the contributions are not allowable for ct purposes there may be scope for relief to be obtained by the individual via satr as a third party contribution.

this may potentially provide the same net effect.

Edit: I was assuming she was a higher rate payer. Basic rate relief is still obtained by the pension fund and it is part of the annual allowance and contribution limit.