Spouse tax planning - pension contribution

[Spoiler]

Just doing a little tax planning ahead of April for my spouse, and looking at optimising the following situation mainly for pension contributions ...

(Yes, I will run this past my accountant as they will be making the changes in FA)

My spouse is a director of 2 Ltds, getting a salary from her one, nothing from my/our one at the moment.

Current setup:
- Spouse is Director of 'Spouse Ltd'
- Gets paid annual salary of £8,632
- No other income, dividends, etc.
- Company pays a small amount into auto-enrolled pension
- Spouse also makes personal pension contributions (~£150 month)

- Spouse is Director/Shareholder (50%) of 'OurCo Ltd'
- Doesn't get salary or director renumeration
- Gets paid divis from OurCo


Idea for 2020/21 tax year:
- 'OurCo' pays spouse £8,632 (or whatever the threshold is - £8,788 ?) for directors renumeration/stipend (no issues with 'market price' for salary)
- Spouse makes pension contributions of £8,632 for the year

Result: No income tax to pay on combined £17,264 income, as pension contributions have increased the allowance.

Anything I missed ?!

[WordIsBond]

I'm confused. Is your spouse paid a salary or not? One statement says yes, another says no.

Are you proposing that spouse pays the contributions next year, or that your company pays them, up to the salary amount? Not entirely clear.

I'll tell you what we're doing. Spouse is a director and gets £8632. Company also makes pension contributions for our directors, who have opted out of auto-enrolment. Contributions are less than £8632 because I think it would be hard to justify making larger contributions for my other half than for me, and if we're too aggressive I might hit the lifetime limit. So we don't do as much as you are thinking of, but we are doing in excess of 50% of salary, direct from the company to the SIPP.

For purposes of CT, you have to justify the expense as legitimately for business purposes. Can you justify the company spending £17K for your spouse for the services provided? Probably not hard to justify a director's stipend of £8K, due to directors' liability, but £17K might be harder unless there is significant work happening.

Also to note in your planning, with the reported increase to personal NI threshold, it might make sense to increase salaries to £12.5K. If we ever get a budget we'll be able to tell....

[Spoiler]

I'm confused. Is your spouse paid a salary or not? One statement says yes, another says no.

Have added a line to clarify - My spouse is a director of 2 Ltds, getting a salary from her one, nothing from my/our one at the moment.

So, I'm looking to pay a salary from my one and make pension contributions matching one of the salaries, so not impacting the personal allowance.

[northernladuk]

You've got quite an unusual set up and I am sure there will be other details that will be drip fed so your accountant(s) have to be your best bet first.

[WordIsBond]

Have added a line to clarify - My spouse is a director of 2 Ltds, getting a salary from her one, nothing from my/our one at the moment.

So, I'm looking to pay a salary from my one and make pension contributions matching one of the salaries, so not impacting the personal allowance.

Ah, makes sense. My first question was, why not just make the pension contribution from Your Ltd direct into her pension as an employer contribution? Cuts out a step....

My answer to my question is that if you do what you are suggesting YourCo will be eligible for the employment allowance. So you can pay each of you £12.5K without any ERNI being due, and if the reported change comes through there will also not be any EENI due, either. So, pay the lady and make the pension contribution, and increase your salaries to £12.5K. I assume it means you have to operate payroll with RTI reporting, but if you have decent software that's minor.

[Spoiler]

Ah, makes sense. My first question was, why not just make the pension contribution from Your Ltd direct into her pension as an employer contribution? Cuts out a step....

My answer to my question is that if you do what you are suggesting YourCo will be eligible for the employment allowance. So you can pay each of you £12.5K without any ERNI being due, and if the reported change comes through there will also not be any EENI due, either. So, pay the lady and make the pension contribution, and increase your salaries to £12.5K. I assume it means you have to operate payroll with RTI reporting, but if you have decent software that's minor.

Thanks for that - will keep an eye on the budget and check in with my accountant. Am using FreeAgent so payroll isn't an issue

[WordIsBond]

While you're at it, take a few minutes to figure out how you could justify that £12.5K salary for the lady. Even I've not gone that far, and my wife does payroll / bookkeeping for multiple employees, billing for multiple contracts.

(But I will be tempted to go that far come April.)

[GhostofTarbera]

“If you want to keep that money, all of it, just give it to your wife. See, HMRC allows you a one-time-only gift to your spouse. It’s good up to £60,000…Tax-free. HMRC can’t touch one penny.”

This advice will cost some cold beers


Sent from my iPhone using Contractor UK Forum

[Spoiler]

While you're at it, take a few minutes to figure out how you could justify that £12.5K salary for the lady. Even I've not gone that far, and my wife does payroll / bookkeeping for multiple employees, billing for multiple contracts.

(But I will be tempted to go that far come April.)

Director renumeration ?! Will take accountants guidance once the next tax year allowances are clearer.

[Spoiler]

“If you want to keep that money, all of it, just give it to your wife. See, HMRC allows you a one-time-only gift to your spouse. It’s good up to £60,000…Tax-free. HMRC can’t touch one penny.”

This advice will cost some cold beers

Not sure I follow this - the cash is the Ltd's cash. not mine ??