Limited company question

Aaron1974

Hello everyone, 
I have a limited company with my wife in addition to a FT job. I was wondering if it would be possible to split the profits by giving a dividend to my wife and for me to take my equal share in the form of a personal pension? I'm not sure if we both need to take the same dividend amount? I'd like to take my portion as a personal pension to reduce tax and build up my pension pot if I can. Not sure this is possible though.

Thank you in advance. 
Aaron

[Deleted User]

What is the individual shareholding in the company?

Aaron1974

We have 1 share each, effectively 50% for me and 50% for my wife.
Thank you for replying. 

[Deleted User]

Corporation tax was not ever my specialism and its approximately 20 years since I dabbled in it. However, it appears that you are talking about waiving your dividend entitlement. I do remember that these were generally frowned upon and this article may help explain why. What difference would it make to you to take the dividend and invest the amount in a personal pension anyway? As I say - I am no expert in this area but there are plenty on here who are.

https://www.taxinsider.co.uk/dividend-waivers-beware-the-pitfalls-ta

Aaron1974

Hello again,
I'm thinking of using my "dividend" portion as a personal pension contribution. I'm not sure if that's waiving as the funds will not be in the company? I'm really not sure though.
Thank you again,
Aaron

Jeremy535897

[Deleted User] said:

Corporation tax was not ever my specialism and its approximately 20 years since I dabbled in it. However, it appears that you are talking about waiving your dividend entitlement. I do remember that these were generally frowned upon and this article may help explain why. What difference would it make to you to take the dividend and invest the amount in a personal pension anyway? As I say - I am no expert in this area but there are plenty on here who are.

https://www.taxinsider.co.uk/dividend-waivers-beware-the-pitfalls-ta

I agree with this.

Aaron1974

Hello again,

Wouldn't I be taxed twice before getting the dividend? 19% Corporation tax then 32.5% income tax? If I could distribute the profits to a private pension I don't believe that would be necessary. 
It seems it might be difficult though judging by your replies.
Thank you again for your advice,
Aaron

Jeremy535897

You talked of a personal pension. If you want a corporation tax deduction, the company has to make the pension contribution as an employer. If you personally make the contribution, the company will pay CT (as it will on any profits paid out by way of dividend) and you obtain a tax deduction on the contribution at your marginal tax rate.

ukri

OP, we had the same dilemma as few months after incorporating.

An accountant solved it by creating two classes of shares (similar in all respects except rights to dividends) and redesignating one set of shares to the new class. So now dividends can be announced separately for each class, paying myself and the wife differently.

Im not an accountant but would suggest you get advice, the best £400 I spent.

DoctorStrange

Making an employer contribution to your pension isn't the same as a dividend. 

On the dividend side, if you both own the same class of share (which it seems you do) then you must both receive the same dividends i.e. you can't pay one and not the other

On the employer contribution front, you could (in theory at least) be opening the company up to accusations of discrimination on the basis that one employee (you) received a far more generous compensation package than another (your wife) despite doing work of similar value. 

I'd say you and your wife have to agree on the same compensation method and then follow that for both of you, with the employers pension contribution obviously being the most tax efficient.

Also,  some middle ground might be to simply to leave the money in the company for now.  You'd pay 19% CT of course but then you'd have the flexibility of withdrawing it before pension age.

Aaron1974

ukri said:

OP, we had the same dilemma as few months after incorporating.

An accountant solved it by creating two classes of shares (similar in all respects except rights to dividends) and redesignating one set of shares to the new class. So now dividends can be announced separately for each class, paying myself and the wife differently.

Im not an accountant but would suggest you get advice, the best £400 I spent.

That sounds interesting. Thank you.