[Tax Planning][17/18] Company structure - spouse

[northernladuk]

The standard advice for some time has been that alphabet shares can be risky (as per TCP's post above) as being aggressive tax avoidance. Since they now have the right to pursue you for tax avoidance (within the law as written) that they interpret as violating the intent of the law, I would say the risk of alphabet shares is higher than it used to be. The advice historically has been that there should be a legitimate business reason for alphabet shares. The reason given in this thread is not a business reason but a personal tax planning one. I'd hesitate to do it if I were the OP, for those reasons.

Exactly this IMO. The OP's approach couldn't be more aggressive and is based purely on tax. I mean, trying to claim she is carrying out secretarial duties for him when she works full time as well. Yeah right.

I'm a bit bemused InTouch are going along with this without a word or warning or explanation as well. The other accountants appear to not want to touch this idea as they advised the OP speak to his accountant but NW piled straight in with the aggressive setup as if it was standard practice.

If I were the OP, I would not pay a salary to spouse, since that would put her into higher rate tax. I would want to structure shares such that my spouse could receive £5K dividends tax free, and that I could approximately maximise my income under the higher rate band.

I would pay myself £8K salary. That would leave £37K available for dividends (presumably that £37K will increase towards £40K or higher in the next few years) without going into the higher rate band. So the target dividends would be £5K for spouse and £37K for myself. I would use an 8-1 split, 8 shares for myself, 1 share for spouse.

This year, I would pay £4.6K per share in dividends -- £36.8K to me, £4.6K to spouse. As the threshold increases in future years, I would increase the per share dividend, keeping myself within the basic rate band. Once the per share dividend reached £5K, if I still had room within the higher rate band, I would increase the salary instead (which would incur NI liabilities but save on Corporation Tax, so almost a wash).

If your spouse ever quits her job, you could restructure, everything changes. You probably don't want to change your share structure frequently (that also could look suspicious to HMRC), but it certainly makes sense to review it every 4-5 years.

This would have been much more sensible and advice I would have expected my accountant to give.

Edit: Just noticed this is my 1000th post. Incredible. I need to get a life.

Congrats young padawan.

[teapot418]

... but NW piled straight in with the aggressive setup as if it was standard practice.

InTouch, not NW.

[RonBW]

Exactly this IMO. The OP's approach couldn't be more aggressive and is based purely on tax.

I'm fairly sure that there are many other approaches that can be adopted that are more aggressive - for example giving 10% of the company to a parent for no reason, or operating via an umbrella loan company.

I'm a bit bemused InTouch are going along with this without a word or warning or explanation as well. The other accountants appear to not want to touch this idea as they advised the OP speak to his accountant but NW piled straight in with the aggressive setup as if it was standard practice.

Only one accountant other than InTouch has commented in this thread.

[Neil@Intouch]

I'm a bit bemused InTouch are going along with this without a word or warning or explanation as well. The other accountants appear to not want to touch this idea as they advised the OP speak to his accountant but NW piled straight in with the aggressive setup as if it was standard practice.

This advice was based solely on the OP, not standard practice. In this scenario an alphabet share structure could work, but there are certain points that need to be raised to ensure this is setup correctly to not fall foul of the settlement legislation.

[northernladuk]

I'm fairly sure that there are many other approaches that can be adopted that are more aggressive - for example giving 10% of the company to a parent for no reason, or operating via an umbrella loan company.

Nah. Both of those are well known no no's and are a step to far. I was trying to put the OP's example in the grey area where it's aggressive but arguable but those two don't tend to be arguable, just too far... if that makes sense.

Only one accountant other than InTouch has commented in this thread.

Technically but TheCyclingProgrammer is one our most eminent posters on financial matters and his advice rates up there with the accountants IMO. You'll see that over time. Normally a number of them would jump on with numbers for the OP. The fact there was only Alan and TCP who both said go speak to an accountant speaks volumes to me.

[northernladuk]

This advice was based solely on the OP, not standard practice. In this scenario an alphabet share structure could work, but there are certain points that need to be raised to ensure this is setup correctly to not fall foul of the settlement legislation.

But it seemed very matter of fact. It's only now you use the term 'could work' and bring in the other points. You went as far as to recommend the alphabet setup with non of the caveats above.

And you would ADVISE!!!!

EDIT : And wouldn't giving 1 share each cause a problem when agents look the company up? Because some of these sites don't differentiate classes it would look like he's not a major shareholder of the company which some agents appear to be getting twitchy about nowadays?

[Neil@Intouch]

But it seemed very matter of fact. It's only now you use the term 'could work' and bring in the other points. You went as far as to recommend the alphabet setup with non of the caveats above.

And you would ADVISE!!!!

For the OP scenario I would advise, as Accountant's are role isn't to tell clients what to do.

EDIT : And wouldn't giving 1 share each cause a problem when agents look the company up? Because some of these sites don't differentiate classes it would look like he's not a major shareholder of the company which some agents appear to be getting twitchy about nowadays?

If you are referring to information held on CH, then yes this would show the classes of shares issued (SH08).

[atanas]

What do you guys think about this arrangement:

Dividends to be paid: £70,000

Spouse

• No salary paid
• Shares: 1 [10%]
• PAYE Income: £32,464
• Dividends: £12,536

Breakdown:

£11,500.00 Personal Allowance
£20,964.00 PAYE Taxable
-->Basic @ 20% £20,964 = £4,193
-->Higher @ 40% £0 = £0
-->Top @ 45% £0 = £0
£4,192.80 PAYE Tax including taxable redundancy
£2,916.00 PAYE NIC's
-->remaining p.a £0.00
-->remaining basic band £12,536.00
-->remaining higher band £116,500.00
£0.00 NIC Exempt Income Tax
-->Basic @ 20% £0.00 = £0.00
-->Higher @ 40% £0.00 = £0.00
-->Top @ 45% £0.00 = £0.00
-->remaining p.a £0.00
-->remaining basic band £12,536.00
-->remaining higher band £116,500.00
£565.20 Dividend Tax
-->Taxable Dividend £12,536.00
-->Dividend Allowance @ 0% £5,000.00 = £0.00
-->Ordinary @ 7.5% £7,536.00 = £565.20
-->Upper @ 32.5% £0.00 = £0.00
-->Top @ 38.1% £0.00 = £0.00
-->remaining p.a £0.00
£0.00 Capital Gains Tax on Residential Assets
-->remaining basic band £0.00
-->remaining higher band £116,500.00
£0.00 Capital Gains Tax on Other Assets
-->remaining basic band £0.00
-->remaining higher band £116,500.00
£45,000.00 Total Gross Income
£4,758.00 Total Tax Due
£2,916.00 Total NIC's Due
£7,674.00 Total Tax+NIC Deductions
All Deductions £7,674.00
Net Income £37,326.00
Effective Tax Rate 17.1%

Director

• Director Salary: £8,164
• Shares: 9 [90%]
• Dividends: £36,500
• Private pension: £21,000

Breakdown:

£11,500.00 Personal Allowance
£0.00 PAYE Taxable
-->Basic @ 20% £0 = £0
-->Higher @ 40% £0 = £0
-->Top @ 45% £0 = £0
£0.00 PAYE Tax including taxable redundancy
£0.00 PAYE NIC's
-->remaining p.a £3,336.00
-->remaining basic band £59,750.00
-->remaining higher band £116,500.00
£0.00 NIC Exempt Income Tax
-->Basic @ 20% £0.00 = £0.00
-->Higher @ 40% £0.00 = £0.00
-->Top @ 45% £0.00 = £0.00
-->remaining p.a £3,336.00
-->remaining basic band £59,750.00
-->remaining higher band £116,500.00
£2,112.30 Dividend Tax
-->Taxable Dividend £33,164.00
-->Dividend Allowance @ 0% £5,000.00 = £0.00
-->Ordinary @ 7.5% £28,164.00 = £2,112.30
-->Upper @ 32.5% £0.00 = £0.00
-->Top @ 38.1% £0.00 = £0.00
-->remaining p.a £0.00
£44,664.00 Total Gross Income
Less Paye Pension Contributions of £0.00
Less Private Pension Contributions of £21,000.00
Less Student Loan Payments of £0.00
£21,000.00 Total Other Deductions
£2,112.30 Total Tax Due
£0.00 Total NIC's Due
£2,112.30 Total Tax+NIC Deductions
All Deductions £23,112.30
Net Income £21,551.70
Effective Tax Rate 4.7%

Total taxes: £2677 to extract £49,000 in dividends and put the £21,000 into a private pension

[northernladuk]

You not get the bit about asking your accountant?

Where is your warchest in all that?

[northernladuk]

For the OP scenario I would advise, as Accountant's are role isn't to tell clients what to do.

I was being pedantic about this.

I would advice an alphabet share structure

If you are referring to information held on CH, then yes this would show the classes of shares issued (SH08).

Some of the other company check sites don't though so it's not clear and agents and like may not be smart enough to understand the different classes and will just assume wrongly?