Advice on making my wife a shareholder of my Ltd Company?

[JohnDoe]

I opened my new Ltd Company at the end of last year. I am a contractor and sole Director of my Ltd with 10 shares. My wife is the genuine administrator of the company, does the VAT and does all the paperwork, dividend documents, minutes etc. I pay her a small salary (£6k per year) but she does not have any shares (was advised this may be an issue by my accountant as apparently HMRC are looking at going after income splitters). However, there seems to be conflicting opinions online about whether it is a good idea to split company ownership. I am now thinking that it might be a good idea for my wife to become a shareholder (I am thinking 70:30). Can anyone advise whether;

a) There is any chance of the S660 legislation actually having any real power (especially retrospectively)?
b) What is the best way to make my wife a shareholder? Is it possible to gift her shares or is this dodgy?
c) Whether I should make her a director too?
d) Whether it would look strange to HMRC that she is only now becoming a shareholder?
e) What is the safest way to make her a shareholder without raising eyebrows with HMRC?

Thanks.

[northernladuk]

Quoted from another post on here..

As per Arctic, as long as the shares are genuine, have equal voting rights and are not otherwise constrained, there is no problem at all about your spouse having them no matter how they are acquired. It's only if you give away shares that do not imply co-ownership and are therefore simply a way to get dividend income might S660 come into play under the connected persons rules. That's probably what your accountant was trying to say, but you don't need to be a director or an employee, just someone with the same class of shares as the owner.

Long thread on exactly this here...

http://forums.contractoruk.com/accou...areholder.html

100's of threads from CUK asking the same questions can be found here...

wife a shareholder of my Ltd Company? site:forums.contractoruk.com - Google Search.

Damn searching is useful.......

[Wanderer]

I am thinking 70:30

a) There is any chance of the S660 legislation actually having any real power (especially retrospectively)?
b) What is the best way to make my wife a shareholder? Is it possible to gift her shares or is this dodgy?
c) Whether I should make her a director too?
d) Whether it would look strange to HMRC that she is only now becoming a shareholder?
e) What is the safest way to make her a shareholder without raising eyebrows with HMRC?

Does your wife have any other income? If not then just split it 50/50. Unlike a salary which should reflect the work actually done, the shareholding has NO refection on the amount of work done.

a) Sure, anything is possible but it's most likely that won't happen though. The Arctic systems case set the precedent the government would have to change the law and this will be immediately labelled as a "family business tax". They had the opportunity to do this but they have declined so fill your boots.

b) I think most people who do the income splitting do it at company formation time when the company is worth nothing. If your company has £100k as shareholders funds and you sell her a share for £1 then pay out a £50k dividend then it may be interesting. You should get professional advice.

Make sure they are "ordinary" shares not preference shares. Ask your accountant for advice on this, if the can't advise you properly then sack them.

c) If you want. It means the either of you could run the company. Might be useful if anything ever happened to you (terrible thought but).

d) & e) just do it. Lots of people do (including a number of MPs)

[psychocandy]

Wanderer is spot on here.

I'd also consider getting another accountant if he doesnt know the implications of income splitting and the Arctic case. Could be costing you a lot of money.

I assume hes an independent one rather than one of the big contractor ones? I think all the big ones would advise you its OK to split and pay joint dividends thus saving loads of tax (if your mrs doesnt work).

Annoys me that there are accountants out there who obviously dont have a clue and charge good money for their service but end up costing their clients more.

[sb3502]

I have found this a difficult area for which to get good, actionable advice. I set up my company with only me as a shareholder and now realise of course that I could maximise our basic rate allowances if I make my wife a shareholder. I have read everything I can find on here, anywhere else on the web I can find and bought books.

I use one of the big contractor accountants. I have not found them that great for tax advice, but this is not a complaint as I understand their business model. They strongly recommended against transferring any shares and issunig dividends which would include my wife during 2011/12 as it was "too close to the end of the tax year and would attract attention". So I went to a fellow contractor's recommended accountant. He was pretty bullish - do the share split, do another dividend for 2011/12, but do a waiver on my dividend so that my wife can get a dividend but I don't have to go into higher rate tax (I'd already calculated and informed my accountant but not paid my "tax-efficient" dividend for the year). After reading further I realised that this (the waiver) could be a bit of a red rag to HMRC and so went to another accountant and paid for another opinion. That accountant said I should not do anything with the share transfer or dividends until at least the new personal tax year 2012/13 as "you don't want to be the next Arctic Systems". Since that was 2 out of 3 accountants saying the same I took this advice despite it meaning missing an opportunity to extract some profits tax efficiently this tax year (2011/12). I am trying to get an answer at the moment from that accountant about how long I should now leave it and the exact mechanics to avoid issues.

What I have established so far is that the shares transferred need to be a gift for £0 consideration and this needs to be recorded on the share transfer form. The form also needs to make clear that these are ordinary shares and have full voting rights and rights to capital distributions at winding up (i.e. they are exactly the same as my shares and have the same rights and obligations - they are not just about rights to income). The form does not need to be stamped by the stamp duty office because it is for <£1000, but some accountants advise that it is a "good idea" anyway (presumably so that in the event of an S660 situation, HMRC can't argue that the paperwork has been retrospectively created?) I tried calling the stamp office and they couldn't understnad why I wanted it stamped, but I may send it anyway. Of course one also needs to inform Companies House promptly of the change in share ownership and take care of the other legalities such as an ordinary resolution and change of the register of members, but these are not really tax-related.

The last accountant asked me what my commercial justification was for the transfer of shares. In truth its because my wife should have been a shareholder from day one, but I didn't do the company set-up correctly so its a real pain that it now seems to be so tricky/risky(?) to just put this right. I am making her company secretary and a director as well so may use that as a justification for giving her a shareholding. Also ensuring that she has her own bank account so that any dividends are being paid to her as an individual.

Would appreciate any views on timing of issuing a dividend after a share transfer, reasonable commercial justification and other mechanics to get right and overall whether I should be as concerned as I now am. I'm trying to do everything squeaky clean (I do all the dividend paperwork at the right time rather than end of year etc), but even then there seems to be no black and white on this stuff.

Thanks.

[sb3502]

Quoted from another post on here..

Damn searching is useful.......

True, but then searching old threads won't help much when the law, proposed law (anti-avoidance) and HMRC attitude to such matters is changing. Old advice not necessarily valid for current situations.

SB

[Hex]

Commercial Justification

The last accountant asked me what my commercial justification was for the transfer of shares.

I don't get this question. The shares are currently 100% yours personally. You want to give half of them to your wife. This is not a commercial decision it is a personal one. It has nothing to do with the company business, it is to do with who owns the shares in the company.

If this is the sort of advice that accountant is giving I would be suspicious about the rest of their advice.

[northernladuk]

I don't get this question. The shares are currently 100% yours personally. You want to give half of them to your wife. This is not a commercial decision it is a personal one. It has nothing to do with the company business, it is to do with who owns the shares in the company.

If this is the sort of advice that accountant is giving I would be suspicious about the rest of their advice.

But surely the accountant needs to know if, for example, there is no commercial justification except to reduce your tax liability by using your wife's tax allowance before he gives advice?

As you can see from SB's post every accountant has a different opinion. My first accountant said leave it all well alone. Don't make your wife a director and certainly don't give her shares and voting rights. He was divorced so I can't help think he was passing his bitter experience on.

At the end of the day, really, why would you give your wife shares midway through your company lifecycle if there is no commercial reason except to avoid paying tax? The accounant you want to avoid is the one that just says go for it without any words of caution or advice IMO.

Got to ask SB why is he making his wife a secretary as well?

[Lewis]

I don't get this question. The shares are currently 100% yours personally. You want to give half of them to your wife. This is not a commercial decision it is a personal one. It has nothing to do with the company business, it is to do with who owns the shares in the company.

If this is the sort of advice that accountant is giving I would be suspicious about the rest of their advice.

I agree with the above, I think you just need to complete a share transfer form (you can get from companies house) to transfer x shares to wife and job done.

[simondolan]

I have found this a difficult area for which to get good, actionable advice. I set up my company with only me as a shareholder and now realise of course that I could maximise our basic rate allowances if I make my wife a shareholder. I have read everything I can find on here, anywhere else on the web I can find and bought books.

I use one of the big contractor accountants. I have not found them that great for tax advice, but this is not a complaint as I understand their business model. They strongly recommended against transferring any shares and issunig dividends which would include my wife during 2011/12 as it was "too close to the end of the tax year and would attract attention". So I went to a fellow contractor's recommended accountant. He was pretty bullish - do the share split, do another dividend for 2011/12, but do a waiver on my dividend so that my wife can get a dividend but I don't have to go into higher rate tax (I'd already calculated and informed my accountant but not paid my "tax-efficient" dividend for the year). After reading further I realised that this (the waiver) could be a bit of a red rag to HMRC and so went to another accountant and paid for another opinion. That accountant said I should not do anything with the share transfer or dividends until at least the new personal tax year 2012/13 as "you don't want to be the next Arctic Systems". Since that was 2 out of 3 accountants saying the same I took this advice despite it meaning missing an opportunity to extract some profits tax efficiently this tax year (2011/12). I am trying to get an answer at the moment from that accountant about how long I should now leave it and the exact mechanics to avoid issues.

What this goes to show is just what a contentious area it is. The problem we have with the Revenue, and now more than ever, is that anything they don't like, they attack, whether there is justification in law (in our opinion) or not. In terms of the share split, you've asked plenty of different accountants and each has given you a different opinion. They are all (presumably) well meaning and qualified and all have a valid point of view. Also, bear in mind that whatever they tell you, it's not their money that stands to be lost or gained - its yours.

The rather unhelpful answer to your original question is I'm afraid "its up to you". The upside is that you save some money by using your wifes allowances. Downsides are you could get caught up in an investigation and get hammered for legal/accountancy fees and potentially have to repay the money you saved, plus interest and penalties, and put up with the hassle and worry that accompanies these things. What are the odds of this happening? Unlikely in my opinion, but it is a consideration. Consider also what would happen in the event of a divorce if your wife owns half your Company. I've seen this get very messy before.