Shoving some dividends into the missus

[WordIsBond]

Equally I'd feel a bit dubious paying a salary/stipend, giving a share of the company to her is one thing but actively paying her when she does no work is another - again in my eyes only, no judgement on those who draw their lines differently

Well thought out post, and I agree that moral considerations as well as tax and risk have their place in this discussion. Given that, I'd like to quibble on this point.

If something happens to you, where you are incapacitated or killed, it will be a lot easier to deal with the business if there is another active director, especially if you retain any funds.

So first key point, I think there is a legitimate and morally unimpeachable business reason for making your spouse a director. If a company can provide a relevant life plan, I think they can also provide a succession plan.

Second and further to that, if she is a director, there are legal responsibilities and liabilities that come with the position. Mess up the accounts or something else and she could end up with legal problems as well as you. So I would argue that it is a legitimate and morally unimpeachable business expense to compensate her for those responsibilities / liabilities she risks.

The amount of that compensation? Ah, there's the rub. You'd expect a spouse to be willing to take that on for less than someone in the marketplace, obviously. On the other hand, you've got a lot higher trust in the spouse, presumably, which allows you to worry less about safeguards, etc, and that's worth something to you.

For me, there's also another moral component -- you take care of the people who provide you services. If I take on anyone in any role at all, and they have no other income, I'm looking for a way to justify paying at least £5824 a year, so I can at least be sure they are getting state pension entitlement.

Can I justify a director's stipend of £5.8K for a non-exec director of a company with no assets and £50K turnover? Probably not. £100K turnover and £100K+ of retained profits? Well, that gets easier.

Anyway, I see it as entirely moral to appoint a spouse as director and probably not morally defensible to give no stipend (unless the spouse has other income and doesn't want it because it would be poor tax planning). And I do see it a moral argument for pushing that stipend up to the state pension entitlement threshold, if I can justify it.

Practically, I doubt HMRC would ever argue a director's stipend of £8K. Morally, it's a little trickier.

[Jessica@WhiteFieldTax]

There is nothing implicitly wrong with alphabet shares, but in the write circumstances. They key is to avoid the tax tail wagging the commercial dog.

This is a good report about when they have their uses:

https://www.ft.com/content/df249a6c-...f-21b88f7d973f

[northernladuk]

There is nothing implicitly wrong with alphabet shares, but in the write circumstances. They key is to avoid the tax tail wagging the commercial dog.

This is a good report about when they have their uses:

https://www.ft.com/content/df249a6c-...f-21b88f7d973f

Which write circumstances are these then.

[Jessica@WhiteFieldTax]

Which write circumstances are these then.

Two in one night, touché.

Again autocorrect is my story...

[Snarf]

Why?

My spouse and I only have a joint account, no individual accounts.

I asked my accountant about this and he said realistically they don't care. Because we are married our money is shared anyway. I pay her a dividend and she pays some of it into the one of my accounts which ALL of our household bills come out of...
My father does the same with his income from contracting, has been investigated (random check) and it wasn't flagged up so can't be that much of an issue.

[d000hg]

Because we are married our money is shared anyway.

Not as far as HMRC are concerned, sadly, otherwise you could pool your income and pay joint income tax.

[TheCyclingProgrammer]

I asked my accountant about this and he said realistically they don't care. Because we are married our money is shared anyway. I pay her a dividend and she pays some of it into the one of my accounts which ALL of our household bills come out of...
My father does the same with his income from contracting, has been investigated (random check) and it wasn't flagged up so can't be that much of an issue.

I think your accountant is being realistic and I agree with him, generally. I'm not sure this kind of thing is really on HMRCs radar right now (their interest in anything income splitting/settlements related seems to have waned since the failed attempt at introducing a family business tax).

That said, I can see how a joint account could be open to attack.

Despite the Arctic case, if you actually read the settlements legislation and specifically the spouse exemption (s626 IIRC) one of the conditions is that the gift of shares is an "outright gift" and that is defined as a gift in which (paraphrasing) the donor of the shares does not retain any beneficial interest in the shares or any derived income (see legislation for exact wording).

This aspect of the spouse exemption wasn't really elaborated on in the case AFAICT but my own interpretation is that his means having some kind of actual beneficial interest in the shares or dividend income or some kind of conditions attached to the shares that directly benefit you (e.g. a right to some of the dividend income or that the shares must be returned to you).

I see what you're saying - if your spouse receives the money you are likely to indirectly benefit one way or the other so what's the difference? She can use that money on household bills or whatever. I don't think HMRC would follow that line of thinking because where would you draw the line?

But if the money goes into a joint bank account then half of those dividends are effectively half yours. You have a provable direct benefit in the derived income from the shares because they half belong to you.

This is somewhat different to her having full control over the money in her account and choosing what she spends it on.

Anyway, this is all hypothetical. Nobody can say for certain how vulnerable to attack paying dividends into a joint account would be and we probably won't find out unless HMRC get bored of ignoring massive scale corporate tax avoidance and decide to start having another go with the settlements legislation (can't see it personally).

[d000hg]

I suppose on the risk-management front you may also have to weigh up the risk of divorce - presumably a £5-8k stipend you can retract more easily, whereas if they own shares you cannot just take them back?

Not something on my radar but it would genuinely be a sensible factor to at least consider should you get married as a contractor presumably? Maybe a separate thread if anyone is interested in "spouse-proofing"

[missinggreenfields]

I suppose on the risk-management front you may also have to weigh up the risk of divorce - presumably a £5-8k stipend you can retract more easily, whereas if they own shares you cannot just take them back?

Not something on my radar but it would genuinely be a sensible factor to at least consider should you get married as a contractor presumably? Maybe a separate thread if anyone is interested in "spouse-proofing"

<Brillo>She's going to take half of everything anyway so it makes no difference</Brillo>

[d000hg]

Bit with dividends "half of what you've got" is "half of what you're going to earn forever". I suppose in reality you'd close the company and start a new one?