Reply to: Spouse (and employee) pension contributions from Ltd?

[northernladuk]

For complete disclosure, this for me is currently a hypothetical scenario - recently returned to contracting (previously employed spouse and paid her £250/month to pension some years back) and am weighing up whether wife should continue working 3 days a week on near minimum wage, or come and work for me doing the books and stuff....

With two young children and first gig involving staying away Tues/Weds, the latter option is tempting, but yes I'd be inclined to agree that pension contribution to wife's SIPP would need to be proportionate to salary (not that my ltd co could afford to lump £40k in anyway!).

I can't help you here because it annoys the tits of me when people put delusional scenarios in to try justify it to themselves. Come and work for you to do the books? A) in 99.9999% of cases where a contractor says the wife does the books she's never lifted a finger. B) How long does doing the books take? It certainly doesn't take 2 days a week and revert to comment A.

How much would you pay someone else to come in and do your books? 11k a year?

At least be honest with yourself and us. You are trying to use the wife to be as tax efficient as possible. That's the plan, none of this actually trying to convince people she's doing any work. Nothing wrong with that and you are allowed to do it to a limit. The idea is not taking the piss and push it beyond unreasonable. If you take the piss people will come expecting you to justify this work which you can't so don't do it.

Also remember, the 3 days at minimum wage is money towards the family income. Working for the company is still your earned money and you are just extracting it a little more efficiently so not really adding to the overall income.

[fiisch]

I'd seriously go get a second and third opinion from contractor specialists accountants on this as to make sure your guy isn't telling you to fill your boots as you won't get caught rather than the proper thing to do, unless that fits your risk profile because it certainly doesn't mine. He might be telling you what is possible, not what is right. I'd also be researching this myself to see it in black and white as it's so out there.

Your call but I wouldn't be able to sleep at night with that setup unless I've read it and heard it from multiple accountants.

Usual caveat, I could be completely wrong and you are in the clear but that goes against a modicum of common sense and all the advice on here and what my accountants in the past have said so happy to raise a red flag and be educated...again.

For complete disclosure, this for me is currently a hypothetical scenario - recently returned to contracting (previously employed spouse and paid her £250/month to pension some years back) and am weighing up whether wife should continue working 3 days a week on near minimum wage, or come and work for me doing the books and stuff....

With two young children and first gig involving staying away Tues/Weds, the latter option is tempting, but yes I'd be inclined to agree that pension contribution to wife's SIPP would need to be proportionate to salary (not that my ltd co could afford to lump £40k in anyway!).

[sreed]

Add all remuneration together (salary, pension, any other benefits, etc) and see it as one number.

This number being reasonable, it should be fine to make employer contributions to your wife's pension as long as you are relatively confident that it isn't excessive and is proportionate to her contribution to the business.

Some examples of case law here.
https://library.croneri.co.uk/cch_uk/pctm/51-560

[northernladuk]

It was suggested to me that putting large one-off contributions into wife's SIPP, especially if larger than my own, could be construed as a bit of a red flag.

Bearing in mind year end reporting and what have you that will show total contributions and the like I can't see how monthly or year total makes one iota of difference. Like if you decided to ignore Arctic and pay her 40k. Would paying her 3333 per month or 40k in one lump at the end make any difference when they report total years earnings?

Happy to be proven otherwise but I can't believe HMRC are that stupid they'd miss monthly payments vs a single big one?

The guidance I was given was to make monthly contributions to wife's SIPP which were less than or equal to those I was making to myself.

So you pay yourself 1001 a month. Your wife who I assume is earning 11k gets 1k a month. How can someone earning 1k a month justify a 1k pension. How is that not a blatent piss take?

I can't quote laws and regs to back any of this up but often if it looks like a piss take then it's a piss take and paying your wife just less pension than you do as the main earner falls squarely in to that IMO.

Absolutely none of the advice we've had on here in this area backs any of this up but we are well used to the odd accountant giving some very suspect advice like this hence me calling it out in post 4.

I'd seriously go get a second and third opinion from contractor specialists accountants on this as to make sure your guy isn't telling you to fill your boots as you won't get caught rather than the proper thing to do, unless that fits your risk profile because it certainly doesn't mine. He might be telling you what is possible, not what is right. I'd also be researching this myself to see it in black and white as it's so out there.

Your call but I wouldn't be able to sleep at night with that setup unless I've read it and heard it from multiple accountants.

Usual caveat, I could be completely wrong and you are in the clear but that goes against a modicum of common sense and all the advice on here and what my accountants in the past have said so happy to raise a red flag and be educated...again.

[fiisch]

Erm no. The are obliged to offer one but you can opt out no laws being broken.

I called it in an earlier thread you'd find an accountant somewhere that would just say fill your boots. What is the rule about paying your wife more than you? I really don't know how you think drip feeding it rather than a lump will make one iota of difference. Care to elaborate with facts rather than what your accountant says?

It was suggested to me that putting large one-off contributions into wife's SIPP, especially if larger than my own, could be construed as a bit of a red flag.

Also, the SIPP provider I was using for my wife - AJ Bell - weirdly do not seem to easily facilitate one-off employer contributions.

The guidance I was given was to make monthly contributions to wife's SIPP which were less than or equal to those I was making to myself.

[northernladuk]

Of course! If you aren't making pension contributions, you're breaking the law! As her employee, surely you're legally obliged to make at least a nominal contribution?! The fact you aren't is appalling, shame on you sir!

Erm no. The are obliged to offer one but you can opt out no laws being broken.

(Yes, it's fine. The steer I received from my very good accountant was that you couldn't pay more as a company contribution into your wife's SIPP than your own, but other than that to go ahead. It may look odd if you put more into the SIPP than what she's taking as a salary, so personally I'd drip-feed monthly contribution/small amount rather than a one off big lump.)

I called it in an earlier thread you'd find an accountant somewhere that would just say fill your boots. What is the rule about paying your wife more than you? I really don't know how you think drip feeding it rather than a lump will make one iota of difference. Care to elaborate with facts rather than what your accountant says?

[fiisch]

Of course! If you aren't making pension contributions, you're breaking the law! As her employee, surely you're legally obliged to make at least a nominal contribution?! The fact you aren't is appalling, shame on you sir!

(Yes, it's fine. The steer I received from my very good accountant was that you couldn't pay more as a company contribution into your wife's SIPP than your own, but other than that to go ahead. It may look odd if you put more into the SIPP than what she's taking as a salary, so personally I'd drip-feed monthly contribution/small amount rather than a one off big lump.)

[Protagoras]

Transfer of what?

Indeed. When considered in the context of 'transfer of what', it's not the other spouse's money to gift, it's the company's.

I think I need a snooze before dinner.

[WTFH]

I think that where the employee is also a spouse, then the transfer may be a 'gift' and therefore tax-free.

Transfer of what?
You can't pay your spouse as an "employee" and claim it is a tax-free gift.

[Protagoras]

I think that where the employee is also a spouse, then the transfer may be a 'gift' and therefore tax-free.

The same would not be the case for a non-spouse family member, as I understand it.

Will be interesting to hear what OP's accountant advises.

[WTFH]

To be honest it doesn't seem to breach if done properly and to equivalent levels of a normal perm on that wage but I would have thought large pension offerings would come under GAAR as aggresive avoidance wouldn't it?

I would suspect that if someone were to pay their spouse/family member/friend a minimum wage for alleged work, but also max out their dividends and pension, that it would be seen as pushing it a bit.

We used to have a member on here who boasted about working less than 5 days a month (same client for 15+ years), but employed his wife full time to do his paperwork because he was too busy.
It's that kind of thing that give proper contractors a bad reputation, and we all suffer as a result.

[northernladuk]

I'd be interested, out of idle curiosity, to know what rules this might breach (employee and spouse).

Is this a 'settlement' thing, for example?

To be honest it doesn't seem to breach if done properly and to equivalent levels of a normal perm on that wage but I would have thought large pension offerings would come under GAAR as aggresive avoidance wouldn't it?

[Protagoras]

I'd be interested, out of idle curiosity, to know what rules this might breach (employee and spouse).

Is this a 'settlement' thing, for example?

[northernladuk]

Good advice. Thanks. What we are talking about here is small pension payments (if any at all), not taking the piss or anything. Will speak to my accountant as suggested (which I realise should have done first anyway).

Be interesting to see what they say. From what we've seen and who I've spoken to many of them say not to bother to be on the safe side, some may say minimum but I'm sure you'll be able to find a slapdash set up that says yeah fill your boots. Mine said it's technically possible but sucked their teeth at it which is was enough for me to not do it if I was in a position to do so.

I am sure they'll know but make sure they clarrify the point about being an employee or not.

[Gomez]

Good advice. Thanks. What we are talking about here is small pension payments (if any at all), not taking the piss or anything. Will speak to my accountant as suggested (which I realise should have done first anyway).