Pension contributions from employer

[suresh505]

I work as a contractor through a limited company. Myself and my wife are directors and each of us have 50% shareholding. Both of us are employees of the company as well. I'm planning to enrol for workplace pensions. We are planning to contribute about 1% of salary as employee contribution. As for employer contribution, is it mandatory that both of us should receive the same amount of pension contribution from the company? Can one person receive more employer contribution than the other? What are the rules governing this area?

[SteveGrr]

Some of the rules

The total of employer and employee contributions can't exceed £40k per person in each year (although you can use any unused allowance from the previous three years, so you need to work out what you and your wife have previously used). There is also a £1m lifetime allowance.

If you make employers contributions into a SIPP then you need to be careful they don't automatically try to reclaim the tax from HMRC (since you won't have paid any). That's just something to watch out for if you use an online portal and bank card to pay it. My SIPP is in share.com and I found I had to phone them and give the payment details. All very easy but something to be aware of.

I guess the other challenge is that the payment into your wife's pension may get HMRC scrutiny if it is disproportionate to the work she does for the company and the salary she is paid. If she is just an inactive director then paying both a salary and a pension might get scrutiny - or maybe not, you never know until the taxman comes knocking!

[northernladuk]

I work as a contractor through a limited company. Myself and my wife are directors and each of us have 50% shareholding. Both of us are employees of the company as well. I'm planning to enrol for workplace pensions. We are planning to contribute about 1% of salary as employee contribution. As for employer contribution, is it mandatory that both of us should receive the same amount of pension contribution from the company? Can one person receive more employer contribution than the other? What are the rules governing this area?

I bet you aren't.

[SueEllen]

I work as a contractor through a limited company. Myself and my wife are directors and each of us have 50% shareholding. Both of us are employees of the company as well. I'm planning to enrol for workplace pensions. We are planning to contribute about 1% of salary as employee contribution. As for employer contribution, is it mandatory that both of us should receive the same amount of pension contribution from the company? Can one person receive more employer contribution than the other? What are the rules governing this area?

Do you pay at least NMW to all employees?

Do you have a contract of employment?

You are aware being an office holders of a company doesn't necessarily mean you are an employee, right?

[suresh505]

Employer pension contributions

I guess the other challenge is that the payment into your wife's pension may get HMRC scrutiny if it is disproportionate to the work she does for the company and the salary she is paid. If she is just an inactive director then paying both a salary and a pension might get scrutiny

I think you have nailed it above - that's exactly my concern. I'm a consultant and my wife is a secretary in the company. We both receive a salary of £11,500/year. It appears like, even though we can draw equal amounts of dividend each year, it may not be appropriate to draw equal amount of employer pension contributions. This is because, the pension contribution from the employer should correspond to the work done by the employee. Let's say, the company has £50,000 to contribute towards pensions - can we split it as £35,000 for me and £15,000 for my wife?

(P.S.: I will be talking to my accountant about this as well but I would like to know some real world experience from people in this forum)

[suresh505]

Employees of limited company

I bet you aren't.

Could you please let me know why you say so? We both receive salary of about £11,500/year through PAYE. Is there anything I'm missing here?

[malvolio]

Could you please let me know why you say so? We both receive salary of about £11,500/year through PAYE. Is there anything I'm missing here?

Yes. A contract of employment.

[SimonMac]

I think you have nailed it above - that's exactly my concern. I'm a consultant and my wife is a secretary in the company. We both receive a salary of £11,500/year. It appears like, even though we can draw equal amounts of dividend each year, it may not be appropriate to draw equal amount of employer pension contributions. This is because, the pension contribution from the employer should correspond to the work done by the employee. Let's say, the company has £50,000 to contribute towards pensions - can we split it as £35,000 for me and £15,000 for my wife?

(P.S.: I will be talking to my accountant about this as well but I would like to know some real world experience from people in this forum)

Why would pensions corresponded to the work done for the company but not the salary?

[SueEllen]

I think you have nailed it above - that's exactly my concern. I'm a consultant and my wife is a secretary in the company. We both receive a salary of £11,500/year. It appears like, even though we can draw equal amounts of dividend each year, it may not be appropriate to draw equal amount of employer pension contributions. This is because, the pension contribution from the employer should correspond to the work done by the employee. Let's say, the company has £50,000 to contribute towards pensions - can we split it as £35,000 for me and £15,000 for my wife?

(P.S.: I will be talking to my accountant about this as well but I would like to know some real world experience from people in this forum)

Is your wife a fee earner for the company?

[suresh505]

Is your wife a fee earner for the company?

I guess you are asking if my wife generates revenue for the company. The answer would probably be "No" - she is only a secretary in the company.