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Where Taxpayers and Advisers Meet

Pension contributions from Limited company

Cap_Scarlet
Posts: 25
Joined: Sun Jun 17, 2018 2:59 pm

Pension contributions from Limited company

Postby Cap_Scarlet » Thu Jun 21, 2018 9:38 pm

I have recently registered a limited company from which I will undertake consulting - both myself and my wife are the sole directors and shareholders. I will do the consulting and my wife will do the books (she is an accountant) and file all the relevant documents with companies house.

I have income from other sources (mostly from a pension) which means I don't actually need to take any money out of the company. We have most of our investments in my wife's name so she has income (dividends and interest) but no 'earned' income. Given current income sources, there is no point in the future when I will not be a higher rate taxpayer.

Consulting income through the limited company will be around 300k per year so my challenge is how to extract the money from the company as tax efficiently as possible. I may decide to consult for 1-3 years.

I have the following questions:

1. Can I pay my wife a salary if I do not pay myself anything?
2. Would we fall foul of the tax authorities if the company paid a significant sum each into a pension scheme (c. 75-100k)?
3. Can I invest via the company in an EIS?

What else should I be thinking about?

I have just engaged a third party tax advisor but would like some feedback so I can have an educated first discussion with them.

wamstax
Posts: 1869
Joined: Wed Aug 06, 2008 3:39 pm
Location: Operate Nationally but based in Aberdeen
Contact:

Re: Pension contributions from Limited company

Postby wamstax » Thu Jun 21, 2018 10:00 pm

Clearly there is nothing objectionable in your wife being paid a salary commensurate with the duties she actually carries out. As far as the rest is concerned you are doing the correct thing in seeking a third party tax advisor who will be able to examine all aspects of yourselves and the company and business and provide tax advice that you rely on based on the fees that you pay him/her for such advice.
regards and hope this helps
http://www.wamstaxltd.com
Operates Nationally with competitive costs
and email and phone contact can be obtained from website

AdamS93
Posts: 238
Joined: Tue Sep 26, 2017 6:28 pm

Re: Pension contributions from Limited company

Postby AdamS93 » Fri Jun 22, 2018 8:02 am

Salary, no problem as longs as reasonable remuneration.

Pension - there are problems - there are restrictions on how much you can put in a pension each tax year (complex rules) as well as a lifetime allowance and a money purchase annual allowance. All of which should be considered.

EIS - your question isn’t very clear. A company can’t make EIS investments, and your investments to your company will not qualify as you and your wife combined own 100% o the share capital (the can be no more than 30%).

Earning 300k per year, there will be tax to pay unfortunately and retaining the cash in the company will only delay the personal tax.

If you wait until there is £1m in the company for example, you will struggle to get your hands on that without paying a lot of tax.

Cap_Scarlet
Posts: 25
Joined: Sun Jun 17, 2018 2:59 pm

Re: Pension contributions from Limited company

Postby Cap_Scarlet » Fri Jun 22, 2018 5:19 pm

Salary, no problem as longs as reasonable remuneration.

Pension - there are problems - there are restrictions on how much you can put in a pension each tax year (complex rules) as well as a lifetime allowance and a money purchase annual allowance. All of which should be considered.

EIS - your question isn’t very clear. A company can’t make EIS investments, and your investments to your company will not qualify as you and your wife combined own 100% o the share capital (the can be no more than 30%).

Earning 300k per year, there will be tax to pay unfortunately and retaining the cash in the company will only delay the personal tax.

If you wait until there is £1m in the company for example, you will struggle to get your hands on that without paying a lot of tax.
Thank you - that's helpful.

I don't expect to work for more than an additional two years, so we won't accumulate that much!

I am formulating a plan in my head which looks like the following:

1. I will pay my wife for the work she does as accountant and company secretary. c. 12k per annum.
2. Pay pension contributions for both of us up to the maximum allowable.
3. Pay dividends which fully absorb my wife's basic rate income tax band.
4. I assume based on that if I take dividends at the same time I will just have to suck up that I pay at the higher rate.

My question then remains:

What happens if we finish trading after two years and there are undistributed funds in the company? Can we continue to take that as dividends to use my wifes basic rate allowance? Is there another way to get the cash after ceasing trading?

robbob
Posts: 2843
Joined: Wed Aug 06, 2008 4:01 pm

Re: Pension contributions from Limited company

Postby robbob » Sat Jun 23, 2018 10:31 am

Pay pension contributions for both of us up to the maximum allowable.
You will need to be careful with regard to pension contributions to your wife made by your company as they are likely to follow the same logic with regard to salary payments in that they should be reasonable for the duties undertaken. So if she is doing part time admin work paying 40k into her pension per year may fail the relevant test for claiming a corporation tax deduction for those payments.

https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim37745
What happens if we finish trading after two years and there are undistributed funds in the company? Can we continue to take that as dividends to use my wife's basic rate allowance? Is there another way to get the cash after ceasing trading?
Yes you can carry on taking dividends as long as there are available retained profits.

One other possibility is using entrepreneurs relief via liquidation.

https://www.gov.uk/entrepreneurs-relief
https://www.purnells.co.uk/limited-company/member-voluntary-liquidations/Members-Voluntary-Liquidation-Entrepreneurs-Relief

Cap_Scarlet
Posts: 25
Joined: Sun Jun 17, 2018 2:59 pm

Re: Pension contributions from Limited company

Postby Cap_Scarlet » Sat Jun 23, 2018 5:44 pm

One other possibility is using entrepreneurs relief via liquidation.

https://www.gov.uk/entrepreneurs-relief
https://www.purnells.co.uk/limited-company/member-voluntary-liquidations/Members-Voluntary-Liquidation-Entrepreneurs-Relief
Thank you - that's an interesting one.

Are there any pitfalls to avoid there e.g. if we cease trading but the company is full of cash sitting in investments could HMRC claim that it's not a trading business?

AdamS93
Posts: 238
Joined: Tue Sep 26, 2017 6:28 pm

Re: Pension contributions from Limited company

Postby AdamS93 » Sat Jun 23, 2018 9:08 pm

Google ‘moneyboxing’ - any capital treatment on winding up may be treated as an income distribution in certain circumstances, retaining excess cash above and beyond the needs of the company (stacking) is one of those.

Also, if there is excess cash in the business, entrepreneurs relief may also be restricted.


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