Freelance - setting up a LTD

[Lance]

Rereading the article I agree with your statement but I'm a bit confused. Say I can go out and get shares of a public company without any contribution and I still get dividends. How is that different from having a family member or close friend as a shareholder in my LTD and pay them dividend? Why do they need to play a role in the company in order to receive dividends?

did you read it or not?

The aim surrounding these rules is to prevent limited company contractors from passing income to someone else in the family who pays at a lower tax rate on their earnings

You have a plan. A good plan. Don't overthink it. Don't go looking for loopholes and workarounds.

[NotAllThere]

How is that different from having a family member or close friend as a shareholder in my LTD and pay them dividend?

Because the law says is. It is different because you are operating a very small company, you are a major shareholder and MD and are able to directly divert funds to family/friends to their benefit. Quite different from buying shares in Sainsbury's - the dividend income there is not directly targeted at any individual persons known to the board. But if you disagree, go ahead and argue it before a tax tribunal. Or do what I suggested - get professional advice. All I've written is what I understand a professional would advise. I am not an accountant or tax lawyer.

[Maslins]

Rereading the article I agree with your statement but I'm a bit confused. Say I can go out and get shares of a public company without any contribution and I still get dividends. How is that different from having a family member or close friend as a shareholder in my LTD and pay them dividend? Why do they need to play a role in the company in order to receive dividends?

What are you anticipating your family member(s) will pay for these shares? Perhaps £1, or maybe £100 tops?
What are you anticipating your family member(s) will receive in dividends as reward for their investment? Perhaps £2k/year to coincide with the dividend allowance, maybe more if profits improve and they have a lower tax band otherwise unused?
That's an amazing yield on their investment, getting their money back potentially a thousand times over each year.
Would you offer that same deal to any random third party not closely connected to you? No, of course you wouldn't.

Compare that to buying shares in a PLC, where you might expect to get something like a 5% yield.
Is that same deal offered to any random third party? Yes, anyone with a bit of money can buy shares in a publicly listed company. They'll all get dividends in line with their shareholding.

That's how it's different. You'd be offering a very special deal to someone closely connected to you, and you haven't suggested there's any valid commercial reason for doing so.

[Lance]

What are you anticipating your family member(s) will pay for these shares? Perhaps £1, or maybe £100 tops?
What are you anticipating your family member(s) will receive in dividends as reward for their investment? Perhaps £2k/year to coincide with the dividend allowance, maybe more if profits improve and they have a lower tax band otherwise unused?
That's an amazing yield on their investment, getting their money back potentially a thousand times over each year.
Would you offer that same deal to any random third party not closely connected to you? No, of course you wouldn't.

Compare that to buying shares in a PLC, where you might expect to get something like a 5% yield.
Is that same deal offered to any random third party? Yes, anyone with a bit of money can buy shares in a publicly listed company. They'll all get dividends in line with their shareholding.

That's how it's different. You'd be offering a very special deal to someone closely connected to you, and you haven't suggested there's any valid commercial reason for doing so.

purely academic question.....

If the OP sold the share(s) for £40k. Netting the shareholder a 5% yield year on year (expected divs of £2k) would that be less problematic? There's still no commercial reason unless the OP was to invest that £40k into plant/premises to service the business.
Clearly that's not going to happen but is it OK for a small company to act like a PLC or is that still a no-no?

[ladymuck]

purely academic question.....

If the OP sold the share(s) for £40k. Netting the shareholder a 5% yield year on year (expected divs of £2k) would that be less problematic? There's still no commercial reason unless the OP was to invest that £40k into plant/premises to service the business.
Clearly that's not going to happen but is it OK for a small company to act like a PLC or is that still a no-no?

Is this where the 'close company' thing comes in?

https://www.rossmartin.co.uk/compani...-close-company