Ltd Company Director SIPP Contributions

BethBC

I am the sole shareholder of my limited company and the company currently pays £60,000 per year into my SIPP and all my carry back allowance has been utilised. Can my company pay in more than the £60,000 allowance and simply not get the corporation tax deduction? Or do I face a tax charge as the employee? Or am I simply not allowed to pay in more than £60,000 no matter?

Many thanks in advance

gm0

AFAIK - once your Annual Allowance and carryback of unused is exhausted. You are done. With a normal pension. As a services ltd director might use. The before CT deduction of "employer" contributions as costs of business is a nice benefit.

Where a spouse can be a legitimate director/employee - with a genuine role in the business - no sleeping 2nd directors - then the benefits of the small company pension scheme as pay can be extended to them. Which obviously provides a 2nd bite at the cherry. And more "employer" contributions as "pay" - which are allowed as pre CT costs.

Abuse of this with a non-contributing spouse who is neither fee earning nor doing a legitimate business support role - can be targeted by HMRC - if they get around to it. My wife did not work in our Ltd. So she "owned" a slice of it. But did not get a pension from it. Others are less scrupulous - or have different working arrangements.

There are also (or were) different rules for the "family" trust SSAS etc. which are a different can of worms in terms of rules, trustees and beneficiaries and pooled assets and what's allowed as assets. Not my field.

NoMore

Exceeding the AA (including any carry forward) will result in the AA charge. You will be responsible for paying this despite the company making the contribution. It could be paid out of the scheme rather than directly by you, but your pension would have to support scheme pays.

I have no idea about what happens about the corporation tax.

I would consider getting tax advice over this, exceeding the AA usually results in you ending up in a worse position tax wise than if you had not contributed above it in the first place. However, I'm not sure about company directors' contributions and the corporation tax.

BethBC

https://forums.moneysavingexpert.com/discussion/comment/81907969#Comment_81907969

Thank you - my husband is genuinely employed in the business and so the company pays £60k a year into his SIPP too ;-)

NoMore

https://forums.moneysavingexpert.com/discussion/comment/81907969#Comment_81907969

There is no limit on the amount you can contribute to pensions, however there are limits that if you go beyond (AA, Tax relief limit) then there is a charge that usually results in it not being worth it. I'm sure there will be edge cases where it might be.

dunstonh

Thank you - my husband is genuinely employed in the business and so the company pays £60k a year into his SIPP too ;-)

Is he genuinely employed in a role where a £60k pension contribution is typical? That isnt an issue for you as shareholding director but for an employee spouse it is the sort of thing HMRC pick up on.

Marcon

Exceeding the AA may be in breach of your SIPP conditions, especially if it is a deliberate act by the employer.

Storcko14

https://forums.moneysavingexpert.com/discussion/comment/81908051#Comment_81908051

As Dunston says this is a real trap for the unwary or poorly advised as it should be easy money for HMRC. I knew a couple of contractor colleagues who were investigated for paying large pension contributions for spouses who 'worked' a couple of hours a week doing expenses. This on top of the spouses' £9k pa (or whatever it was then) NI friendly salary for same work. And in a further ironic twist, one also got done for those expenses and ended up with a £90k tax bill and had to sell the boat.

BethBC

https://forums.moneysavingexpert.com/discussion/comment/81908129#Comment_81908129

He is paid a £45k salary for a full time senior role and could easily have a commission type payment on top but has the pension contribution instead.

BethBC

https://forums.moneysavingexpert.com/discussion/comment/81908051#Comment_81908051

No-one else is receiving a £60k pension contribution (other than me) but no one else has his role so 'typical' doesn't really feature here. He is working full time on a £45k salary and I could totally justify paying him more but he gets the pension contribution instead.

dunstonh

No-one else is receiving a £60k pension contribution (other than me) but no one else has his role so 'typical' doesn't really feature here. 

From HMRC’s perspective, your own £60k contribution as the controlling shareholder‑director is much less of an issue, provided the company has sufficient profits and your overall package is commercially justifiable.

With no other employees in a similar role, HMRC would benchmark your husband’s total remuneration (salary plus pension) against what someone in a comparable role would receive elsewhere in your industry; if it is broadly in line with that, they are unlikely to object, but if it is clearly outside industry norms there is a risk they could restrict corporation tax relief on some of the contribution.

Is his overall remuneration package (including the £45k salary and the £60k pension) typical of what he would be paid for a similar full‑time senior role in another company?

Is his pension contribution set up under a formal salary sacrifice arrangement? That does not change the ‘wholly and exclusively’ test, but if the overall package is consistent with market norms, salary sacrifice could be part of the justification.

We do not have the full picture, but based on what you have said this is the sort of structure HMRC are known to scrutinise for connected employees, so it would be sensible to discuss the details with your accountant to ensure the package is defensible.

Out of interest, is there a specific reason he is an employee rather than a shareholding director? (It would improve taxation and make the pension contribution less of a risk).