New limited company, IT consultant, husband and wife scenario

[Franklin09]

Your plan is not in any way unusual - provided you are married and living together then there are no issues with your spouse holding shares in the company. There is a case law precedent set around this (Arctic Systems) so provided you aren't doing anything different from that then you should be fine - if you are unsure then ask your accountant about this when you appoint one.

The ownership of the company would not be a pointer to IR35 - this is determined by the contract that you have with the agency/end-client and your working practices. I would suggest the contract be reviewed for IR35 purposes (if it hasn't already), rather than taking the word of somebody like an agent - if you get this wrong then it is you that is liable for the additional tax, not them.

Thanks for your comments. Indeed, I am planning to get the contract reviewed for IR35 and, if confirmed outside IR35, going with the IPSE+ and QDOS TLC35 combo. This is for the next 15 months, until April 2020.

[WordIsBond]

I am concerned because I have heard from a friend that sharing dividend with a partner is "risky and could attract HMRC inspection" which then could possibly lead to an IR35 investigation. In other words, don't split your dividend and keep low profile. Pay ~35% in taxes (as opposed to ~25%) to not attract HMRC.

Similar for my plan B, where instead of sharing dividends with my partner, I would own 100% of shares and pay everything beyond £46,351 into SIPP. Again, this would apparently be seen by HMRC as tax avoidance.

There is a difference between sharing dividend with a partner and sharing with a wife. There's a pretty solid legal precedent for the latter. But what you've proposed would probably fly with a partner as well.

There is NOTHING wrong with your plan B. I don't know who said this is tax avoidance, but company pension contributions are entirely acceptable. In fact, if Mrs is doing the book-keeping, you could and arguably should make her a director and be making a pension contribution for her. If all the pension is in your name then at retirement all the income will be in your name, which isn't very tax efficient.

[l35kee]

Both are fine. You can afford an accountant, go get one!

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[WordIsBond]

Why do you need a limited company?

The dividend tax free allowance is of minimal value these days.

I see the advantage of a dividend for employer NIC purposes (and this is perhaps a weakness in terms of "will HMRC come chasing") but other than that, where is the benefit?

I don't know if your clients are in the public sector or not, but from April 2020 it will make little difference. From then the end client will determine IR35 status for each contract.

We believe that HMRC is staring to collect data from big employers about which contractors are now "outside IR35" but following the new rules, will be "inside". Paired with a very mealy mouthed "promise" not to investigate this situation historically (which many in the sector do not believe), we think that there is going to be huge pressure on end clients to put people inside IR35.

At that point, the limited company serves no purpose.

Where is the benefit? None, really, if he is going to be thrown inside IR35 by all his clients.

If not, if he has even one outside IR35 gig every two years, having a limited company will be well worth it.

Even in the public sector not every contract was thrown inside IR35, and the private sector is likely to be more cost-conscious and slower to make blanket assessments.

In short, unless every contract is dragged into IR35, which is highly unlikely, your comment adds nothing to this thread. Even if every contract is inside, there's the liability protection.

Where is the benefit? Well, for one, in addition to the dividend allowance he's going to be able to use up his wife's basic rate band. That alone is a substantive benefit. CT plus Div Tax is lower than IT plus ERNI plus EENI. Company pension contributions don't incur any tax, self-employed pension contributions still incur NI. The ability to avoid the higher rate band and hold funds in reserve for bench time. Limited liability.

That's a pretty substantial list of benefits, thousands of pounds a year, if he's outside IR35.

[WLB2018]

As long as she is really doing the "bookkeeping" and you can prove it you are fine

[TheCyclingProgrammer]

As long as she is really doing the "bookkeeping" and you can prove it you are fine

OP's wife could be doing nothing - she doesn't really need to be doing anything for the company to be a shareholder. If she is doing work for the company and/or is made a director a small salary could also be justifiable.

[WordIsBond]

If she is doing work for the company and/or is made a director a small salary could also be justifiable.

Correct on all points. But, of course, it wouldn't be tax efficient to pay her a salary since she has other income.

[TheCyclingProgrammer]

Correct on all points. But, of course, it wouldn't be tax efficient to pay her a salary since she has other income.

Good point, I forgot about that. I'd still recommend making her a company officer for several reasons - potential to claim ER in future, making it slightly easier to deal with company issues if something were to happen to OP etc.

[Maslins]

Correct on all points. But, of course, it wouldn't be tax efficient to pay her a salary since she has other income.

For the sake of pedantry, the above often isn't true (but admittedly tax savings can be very modest). Key thing is NIC thresholds are available per job, rather than cumulative across all employments. So even if someone earns £20-25k/year elsewhere, and suffers NICs as well as PAYE on that, they can have another job paying up to £702/month, suffering no NICs (but it would still suffer PAYE).

So oversimplifying a little bit, and assuming basic rate taxpayer, you can end up in the situation where comparison is:
- salary = 20% personal tax
- dividends = 19% corporation tax + 7.5% personal tax (assuming dividends will go beyond £2k dividend allowance).
Salary marginally wins. Of course it's far more significant where someone doesn't have any other salary, as then it's 0% personal tax vs 19% corporation tax.

[PerfectStorm]

What does your accountant say?

"I'm going up to bed, don't be long" presumably