Pension contributions with no salary

Pension contributions with no salary

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Hi

Can't find an answer on HMRC, can anyone help, or has anyone come across it before.  Something in the back of my mind from years ago but pension regs have changed since then.

Small company, husband and wife are directors and equal shareholders.  Husband has a salary but wife does not.  She does work very hard for the business (probably 25-30 hours p/w if I had to put an amount on it) but is also employed elsewhere doing around 20 hours p/w, therfore does not draw a wage.

Can the company get tax relief for paying into a pension scheme for the wife even though she has no earnings from the company?  Considering conrtibutions of around £100-200 p/m

Can't find anything similar elsewhere other than references to 'excessive remuneration' when adding together earnings/benefits/pension contributions, but under those rules this would not be excessive considering the work that she does.

In a way think why not?  Contributions can be paid into other people's schemes, directors on small salaries can have if not large contributions then certainly large proportion-wise.  On the other hand is there a difference between small salary and no salary  and what would happen in the real world - i.e. could Bob Jones get his employer No-relation-to-Bob Ltd to pay him only in pension contributions.

Sorry, I seem to have been typing as I think.

Any help or similar tales would be much appreciated.

Replies (8)

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By The Iceni Warrior
07th Dec 2010 18:39

Should be ok

My brother gets a company car and pension contribution, but no salary from his firm. This has been the case for a few years with no problems. The company car goes in January as no longer tax efficient and he will charge mileage. I'd be interested to hear of other similar cases.

-- Iceni

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Giraffe
By Luke
07th Dec 2010 19:40

As long as it would be justifiable if it was salary

I.e. you couldn't pay a spouse a £50k pension contribution for doing 2hrs a week.  But along the usual lines of paying spouses, as long as it would be justifiable as salary (i.e. reasonable rate for the hours they actually do) then I believe you can pay it as a pension contribution.

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By StevenG191919
07th Dec 2010 23:04

Personal relief
I think from the company perspective relief can be obtained just like any other wage cost as a business expense. It does not on the face of it seem excessive to her role within the business.

Where you might have a problem though is in her personal tax return. Tax relief is limited to the level of 'relevant earning'.

On the assumption she is a basic rate taxpayer then everything is dandy.

But if she has other taxable income and is a higher rate tax payer at 40% can she claim relief by way of an extension to the BRB?, I'm not so sure where the contribution comes from a source where no 'relevant' earnings are generated.

From your question you made no reference to income tax position, merely food for thought.

Steven

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By julie.severn
08th Dec 2010 11:36

Thanks everyone

These are very helpful answers and it's nice to hear it's being done elsewhere.  I couldn't see anything that said it would be wrong technically but there's always that worry when it's not a run of the mill thing to do.

Re income tax position I think she earns about £9-10k in her other job so I've no income tax implications but appreciate the input there.

Thanks again and I hope you all have a lovely Christmas

x

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By JCresswellTax
08th Dec 2010 14:21

personal tax return?

i wouldnt think you would have to worry about the personal tax position as if it is a company contribution then it doesnt go near the personal return and you dont have to consider if they can claim higher rate relief. 

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By MBK
08th Dec 2010 18:41

And, just to be clear ....

... there do not have to be personal earnings at all to permit / allow a company contribution. So, even if the wife did not have another income, there are no tax implications if the company makes the contribution.

You need to be very careful to get acknowledgement for the pension company that they are accepting contributions as company contributions, not personal. I've come across several instances in  the past where a company was paying personal contributions. That is just the company discharging a pecuniary liability of the employee, so the payments are nothing more than net pay for PAYE purposes in such circs.

 

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By nogammonsinanundoubledgame
09th Dec 2010 07:41

It gets better

If you can show that she has been underpaid for several years by reference to a market rate, then you may be able to make quite a sizeable employer contritution to "catch up".

With kind regards

Clint Westwood

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By julie.severn
09th Dec 2010 10:09

Amazing

You lot are good!

Much food for thought and much appreicated.

Will bear in mind we need to be explicit with the pension co and make sure forms etc are double checked.

Nice idea about catch up for being previously underpaid, I'll see if they've got a bit of spare cash.

Thanks

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