Director of 2 companies - pension rules

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Mickygg
Mickygg Posts: 1,737 Forumite
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in Pensions, annuities & retirement planning
Hi all

I can't find an answer to this anywhere on the Internet.

I know a company can pay £3,600 into a pension for a director each year where the director is not paid a salary.

What if there are 2 companies that are subsidiaries of a holding company. Can a pension (two lots of £3,600 each year) be paid from each company? The director does not earn any salary in either company.

I can't find any rules on limited company pension payments to directors of more than one company.

Thanks

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  • dharm999
    dharm999 Posts: 559 Forumite
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    Isn't the annual limit 40k, so couldn't the companies pay a combined amount up to 40k?
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    dharm999 wrote: »
    Isn't the annual limit 40k, so couldn't the companies pay a combined amount up to 40k?

    Still need £40k of earnings. Seems as if no salary is being drawn.
  • Theta101
    Theta101 Posts: 140 Forumite
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    Could you use a salary sacrifice scheme?
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    I know a company can pay £3,600 into a pension for a director each year where the director is not paid a salary.

    That is not correct. It is £40,000 for a director of own company (or at least 25% ownership - that is a guide as its open to discretion). If not owner or a minority shareholder, then it is what is reasonable for the role within the company. This is left to the discretion.

    There is the potential to go a further £120k too.
    What if there are 2 companies that are subsidiaries of a holding company. Can a pension (two lots of £3,600 each year) be paid from each company? The director does not earn any salary in either company.

    £40k between them. The company needs to be able to afford the contributions and be profitable.
    Could you use a salary sacrifice scheme?
    The vast majority of "own company" directors pay no NI. And company contributions take care of it automatically.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • Theta101
    Theta101 Posts: 140 Forumite
    edited 10 February 2018 at 4:00AM
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    The vast majority of "own company" directors pay no NI. And company contributions take care of it automatically.

    I am going back to contracting via my "own company" as the sole director and employee.
    I want to maximize pension contributions into my personal SIPP.
    I'm over 55 years of age.

    Is the following possible and would HMRC have any problem with it?

    Next full financial year:

    Company to pay me via PAYE = £8,164 per year.
    This figure is taken from the https://www.gov.uk/employee-directors website.
    So no National Insurance to pay and no income tax to pay.

    Company profit after expenses and PAYE = £65,000.
    Company to deposit all £65,000 into my SIPP via 12 monthly payments.
    This would be £40,000 for the year plus £25,000 carry forward (I have been a member of a registered pension scheme for more than 4 years).

    So the limited company would end up with zero profit, zero corporation tax.
    I'd pay no NI or income tax.

    But what about the minimum wage laws?
    What am I missing?
    (The £8,164 PAYE is enough income for me to see out next financial year.)

    Many thanks.
  • dunstonh
    dunstonh Posts: 116,371 Forumite
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    Company to pay me via PAYE = £8,164 per year.
    This figure is taken from the https://www.gov.uk/employee-directors website.

    You take the salary to the primary threshold. This is £157 pw. (which is you £680pm/8164pa). This qualifies you as if you have paid NI but without the need to pay NI as you do not enter the secondary threshold. This is why most accountants will set the salary at that level.

    But what about the minimum wage laws?

    Doesnt apply. You are an officer of the company and dont have a contract of employment.
    I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
  • dharm999
    dharm999 Posts: 559 Forumite
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    dunstonh wrote: »
    That is not correct. It is £40,000 for a director of own company (or at least 25% ownership - that is a guide as its open to discretion). If not owner or a minority shareholder, then it is what is reasonable for the role within the company. This is left to the discretion.

    There is the potential to go a further £120k too.



    £40k between them. The company needs to be able to afford the contributions and be profitable.


    The vast majority of "own company" directors pay no NI. And company contributions take care of it automatically.

    For my understanding, even though there is no salary the company, or companies, can pay 40k in total, assuming the companies are profitable and have the cash to pay the 40k?
  • System
    System Posts: 178,093 Community Admin
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    dharm999 wrote: »
    For my understanding, even though there is no salary the company, or companies, can pay 40k in total, assuming the companies are profitable and have the cash to pay the 40k?


    Plus carry-forward of up to 3 times £40,000 = £120,000.
  • TheTracker
    TheTracker Posts: 1,223 Forumite
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    edited 10 February 2018 at 7:17PM
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    dharm999 wrote: »
    For my understanding, even though there is no salary the company, or companies, can pay 40k in total, assuming the companies are profitable and have the cash to pay the 40k?

    The company doesn't have to be profitable or have a net value of £40k to pay £40k in pension. It could do so having made a loss. Pension contributions by a company are treated as an expense, just like salary. Whether it would be wise to do so is another question.

    You are probably confusing the situation with dividends, which must be paid only from profit.

    To the OP in terms of optimal renumeration against tax, one can usually just google 'optimal tax 2017/18' for the details, and a whole bunch of accountancy guidance will show up. The one or two or three company part is a red herring. It is you as an individual who can have £40k contributed (plus carry forward), no matter how many sources it came from. Same goes for the NI threshold limit, etc.
  • DesG
    DesG Posts: 1,288 Forumite
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    TheTracker wrote: »
    The one or two or three company part is a red herring. It is you as an individual who can have £40k contributed (plus carry forward), no matter how many sources it came from. Same goes for the NI threshold limit, etc.

    Pretty sure the NI threshold is per employment, not per person.
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