Adding my partner as a shareholder to ltd then retrospectively paying dividends

[prettyboy]

I am the sole director/shareholder of a ltd. Company. I set it up via rapid formations and don’t have a great grasp of the inner workings of the company from a legal perspective.

My partner usually handles my invoicing and books, and I pay dividends into our joint bank account which I then distribute to our personal accounts.

Can I retrospectively add her as a shareholder to my ltd. Company and distribute 50% of the dividends paid to her for 21-22 (last year) or would that be doing something dodgy/illegal? I’ve read about S624 / S660 but I’m a bit confused by all the wording - would this fall under that?

During 21-22 my partner made ~£8000 in PAYE income, in case that is relevant. I haven’t filed my accounts for 21-22 yet. And my company was formed in 2020. The revenue of the company is less than £100k.

i asked my accountant and they said the following:

If this had been a first year, a case may have been made to say that the company had been set up incorrectly and therefore we could go ahead and amend but the company has been incorporated for longer than a year. Saying that, if you felt that the company had been set up incorrectly, this may be something that you would have to decide.

Please do bear in mind that if you do go ahead that your partner would need to be registered for Self-Assessment and you would need to consider any other income that your partner receives to ensure that this is the most tax efficient way to proceed. It would be for this reason that I would recommend 2 classes of shares in the company, an Ordinary A share for yourself and an Ordinary B share for your partner. This would then give you the flexibility to declare different dividend amounts which in turn are the most tax efficient for each of you personally.

I guess the company was setup incorrectly so, Is it as simple as that?

[northernladuk]

I guess the company was setup incorrectly so, Is it as simple as that?

Hell no. You haven't set up the company incorrectly. You've found out you can split dividends with your wife and want to change it. Ignorance is not defence when dealing with tax issues. Incorrectly is when a mistake was made, not because you didn't know and now want to gain a tax advantage. A tax advantage that HMRC doesn't like anyway as well. The fact they have said ' this may be something that you would have to decide.' IMO speaks volumes. Looks like they want nothing to do with it.

Can you re-do the dividends? No. Have a look at this article. https://www.accaglobal.com/us/en/tec...templates.html

Interim dividends are those which are paid throughout the year (monthly, quarterly, annually etc.) Before declaring an interim dividend, the directors must satisfy themselves that the financial position of the company warrants the payment of such a dividend out of profits available for distribution. The general meeting cannot interfere with the directors’ exercise of their power to pay interim dividends. Note that HMRC consider the date of payment of interim dividends to be the date of entry in the company’s books. CTM 20095 (8)

For each dividend a company issues, a voucher must be created and given to its shareholder. This voucher provides the following details about the dividend:

• Name of company
• Company registration number
• Date of issue
• Name and address of shareholder receiving the dividend
• Share class
• Amount of the dividend payment
• Signature of authorising officer.

So what you are proposing is technically fudging the companys books and retrospectively altering your dividend vouchers. Here is an article about backdating dividends. It does talk about previous years rather than in the same year not filed but I think you'll be able to read enough in to it to see HMRC don't like it.

Also here is another thread with someone in exactly your situation.
https://forums.contractoruk.com/acco...ackdating.html
It appears contrary to my flat no (but that's because I hate all this using the wife purely as a tax mule) it's possible but it comes with risks and a warning that your accoutant might do it but leave you to the mercy of HMRC if you get caught. As with most things in this thread it's just too aggressive and a step too far.

The standard partner doing invoicing and books line huh? Riiiiight... but that's totally irrelevant in this situation. Dividends have nothing to do with work done for the company.

I am surprised your accountant is advocating alphabet shares as well. Here is a thread with three of our respected accountants saying no. https://forums.contractoruk.com/acco...et-shares.html Plenty of other articles on it that don't like it either. It's there for a reason and can be useful but to flexibly maximise the tax savings using your wife is a step too far.

Forget all the aggressive tax avoidance. It's a step too far in all the options you have mentioned. Take the hit, set her up properly and just move on.


I'm very negative on all this so I am sure someone will come along with a different view to balance it up.

[malvolio]

Hell no. You haven't set up the company incorrectly. You've found out you can split dividends with your wife and want to change it. Ignorance is not defence when dealing with tax issues. Incorrectly is when a mistake was made, not because you didn't know and now want to gain a tax advantage. A tax advantage that HMRC doesn't like anyway as well. The fact they have said ' this may be something that you would have to decide.' IMO speaks volumes. Looks like they want nothing to do with it.

Can you re-do the dividends? No. Have a look at this article. https://www.accaglobal.com/us/en/tec...templates.html





So what you are proposing is technically fudging the companys books and retrospectively altering your dividend vouchers. Here is an article about backdating dividends. It does talk about previous years rather than in the same year not filed but I think you'll be able to read enough in to it to see HMRC don't like it.
Also here is another thread with someone in exactly your situation.
https://forums.contractoruk.com/acco...ackdating.html
It appears contrary to my flat no (but that's because I hate all this using the wife purely as a tax mule) it's possible but it comes with risks and a warning that your accoutant might do it but leave you to the mercy of HMRC if you get caught. As with most things in this thread it's just too aggressive and a step too far.

The standard partner doing invoicing and books line huh? Riiiiight... but that's totally irrelevant in this situation. Dividends have nothing to do with work done for the company.

I am surprised your accountant is advocating alphabet shares as well. Here is a thread with three of our respected accountants saying no. https://forums.contractoruk.com/acco...et-shares.html Plenty of other articles on it that don't like it either. It's there for a reason and can be useful but to flexibly maximise the tax savings using your wife is a step too far.

Forget all the aggressive tax avoidance. It's a step too far in all the options you have mentioned. Take the hit, set her up properly and just move on.
=

I'm very negative on all this so I am sure someone will come along with a different view to balance it up.

I agree with NLUK. If you haven't yet bothered to learn the basics of corporate accounting, which really is one of your duties as a director, you are not in a position to try something clever.

Until you do, keep it simple and legal. Then the answer to your question will become obvious.

[Craig@Clarity]

I agree with both above. The answer is no. Fortunately, the people on this forum won't tell you what you want to hear but they will tell you like it is. A mistake has been made in that you set up the company yourself without seeking best advice before hand and all the implications that go with it. You next question is to ask your accountant how you go about legally, properly and tax efficiently incorporating your partner in the business. Also get them to explain the Arctic Systems case to you and how what you thought you could be done retrospectively, cannot be done without an inherent risk if you're investigated for "income shifting".

Best of luck. Do come back to the forum for other opinions if you need them.