Limited company and Junior SIPP

ispookie666

Hope i'm in the correct place.  
I'm thinking of setting up a Limited company with Me, wife and Daughter as share holders.  The company would be a side hustle for me and wife.  
Can I use the company income to pay into my daughters Junior SIPP/SIPP? 
If yes, are there any tax implications?

dunstonh

Can I use the company income to pay into my daughters Junior SIPP/SIPP? 

There is no such thing as a junior SIPP (apart from marketing by a provider).    All retail pensions are fine for minors.    

Pension contributions can be made by the company to officers and employees at a level that is appropriate for the role they undertake for the company and relative to other officers/employees.

So, your daughters would need to be active in the company in some role for HMRC to allow it. Shareholding is not the important bit.  The officer position and employment position is.  

Your reference to Junior SIPP suggests it is a minor.  So, what role would they have in the company?

ispookie666

@dunstonh
Not thought that far ahead - I presume, an admin role at national minimum wage would work? Hopefully that would be ok to get to Maximum yearly contribution to SIPP.  
I completely agree Junior SIPP is a marketing ploy.  

Marcon

ispookie666 said:

@dunstonh
Not thought that far ahead - I presume, an admin role at national minimum wage would work? Hopefully that would be ok to get to Maximum yearly contribution to SIPP.  
I completely agree Junior SIPP is a marketing ploy.  

What age is the child - and would they actually carry out this role as an employee, with a contract of employment, monthly salary, employer's liability insurance and all the other things which go with employing anyone (especially a minor)? It really might not be worth the hassle if it is a pure pretence to save a bit of corporation tax.

Not sure what you have in mind when you say 'maximum yearly contribution to SIPP' - that could be £40K, which probably isn't covered by a minimum wage job!

If your daughter makes her own contributions to her SIPP, the provider could still claim tax relief even if she's a non taxpayer. She can contribute £2,880 (topped up to £3,600 by the provider) and if she's a shareholder, pay out of her dividends. Although dividend income isn't counted as earned income for pension purposes, in this case it wouldn't matter because anyone can contribute to a personal pension up to £3,600 gross.

ispookie666

Daughter is 14 yrs.  
As i understand, any dividends would be taxed according to the tax rate of the parents.  Hence thinking of other ways.
I was under the impression, 3600 gross was the maximum contribution to SIPP (Junior). 

As you rightly said, just not worth it.   

Marcon

ispookie666 said:

Daughter is 14 yrs.  
As i understand, any dividends would be taxed according to the tax rate of the parents.  Hence thinking of other ways.
I was under the impression, 3600 gross was the maximum contribution to SIPP (Junior). 

As you rightly said, just not worth it.   

Correct on the tax treatment of dividends - but if your daughter chooses(!) to pay hers into a SIPP, the provider can still claim tax relief on her behalf.

Maximum annual contribution to any SIPP is the lower of £3,600 and earned income (up to £40,000), whatever age the SIPP holder is, assuming no other pension contributions by or on behalf of the SIPP holder in the tax year in question.

dunstonh

I was under the impression, 3600 gross was the maximum contribution to SIPP (Junior). 

No.   Employer contributions are not limited to that.

Not thought that far ahead - I presume, an admin role at national minimum wage would work? Hopefully that would be ok to get to Maximum yearly contribution to SIPP.  

The maximum contribution is £40,000.   However, HMRC are aware of people using pension contributions to avoid taxation beyond what they consider reasonable.   A 50% shareholder husband and wife who both work within the company and hold director positions can pretty easily go to £40k a year.        A minor cannot be an officer in the company until age 16.  So, that would mean they would need to be on the payroll for employer contributions to be made.

Malthusian

Wouldn't it be more tax-efficient to pay the daughter for her work and for her to contribute to a pension out of "post-tax" income?

Employer's NI realistically won't apply as she is under 21. Employee's NI would only apply if she was paid more than £184pw (£9,568 per year). She won't pay income tax unless her taxable income is over £12,570.

If paying her is justifiable at all then it would seem likely to be tax-free for both her and the company. And then she can pay into a relief-at-source pension and get a 25% bonus from tax relief up to her earned income. If the company paid into a pension directly, she would not get the tax relief boost and there would be no tax to save.

(This is due to change from April 2024 when HMRC will in theory start paying bonuses to non-taxpayers who contribute to net pay schemes, but that's two years away even if it happens.) 

If she isn't going to be doing work that would justify either a salary or pension contributions, then I think you are stuck. You may have to accumulate cash in the company and plan ahead for when she turns 18 and can be taxed on the dividends in her own right.