Can my wife, who is a director, receive a dividend?

[sergeantpluck]

I've been a contractor two years, my wife became a director after one year, and receives a small salary. She manages FreeAgent for us but I am the main fee-earner (my wife does not have another job). We wanted to be able to pay her a small dividend each month on top of the small salary but having read extensively here and online it could be I should have given her shares from the start and now it is too late and any new shares provided to her will make HMRC come after us.

I had thought the Arctic services case meant we could with little risk, provide my wife with a smaller dividend than mine. I have a cheapo accountant who has advised I seek advice somewhere else - I am asking around now but wanted to know what you all thought. Am I barking up the wrong tree here? Should we just keep her on the salary with no dividend? Thank you kindly in advance.

[Maslins]

Firstly, directors and shareholders are totally separate things (though one person will often be both in small companies). Being a director doesn't give someone any right to dividends. Being a shareholder potentially does.

She would need to have shares to receive any dividends. You may hear a few horror stories from people on here re it (do be warned if you transfer some shares to her, then you fall out, it won't be easy to get the shares back). But often with married couples it can be a sensible thing to do.

We would recommend against going down the "alphabet shares" route (ie you have "A" shares, she has "B" shares). Some of what people do with those is just asking for trouble in our opinion. Just stick to the same share class. This does mean dividends then have to be paid out in line with that shareholding (you can't pick and choose when/how much to pay in dividends to each of you).

It's also important you consider dividends and salary as two very separate things. Whilst both in practice will involve money going from company bank account to private bank account, legally and from a tax perspective they're very different. Don't be tempted to just send £5k over and thinking you (or your accountant) will worry later about how much of it will be salary and how much dividend.

[WTFH]

I have a cheapo accountant who has advised I seek advice somewhere else...

Who is your accountant?
My advice would be to switch to some of the ones recommended in this thread: https://forums.contractoruk.com/acco...ml#post2914007

After that, they will be able to tell you about the difference between an employee, a director and a shareholder.

[Craig@Clarity]

I had thought the Arctic services case meant we could with little risk, provide my wife with a smaller dividend than mine. I have a cheapo accountant who has advised I seek advice somewhere else - I am asking around now but wanted to know what you all thought. Am I barking up the wrong tree here? Should we just keep her on the salary with no dividend? Thank you kindly in advance.

You get what you pay for I guess. When an accountant asks you to seek advice somewhere else or they ask you for ideas, I'd be questioning my choices.

Plainly put, your wife needs to be a shareholder to receive dividends (it sounds like you know this) but to gift her shares now means you're open to risks of income shifting. If you followed the process of Arctic Systems case, you'd be fine, but gifting shares after the company has been incorporated and traded means it deviates from that case. If you do gift your wife shares, get specific advice surrounding it, be aware of the implications and go in with your eyes wide open.

[Snooky]

One option might be to start another company, with the share structure you want, and novate any existing contracts to that company, allowing future payments to be made in the way you describe. You can either keep the old company running or slowly drain shareholders funds from it. What you probably can't do is close it down via any methods which give you a tax advantage, such as MVL, since that might be viewed as "phoenixing".

This is just me voicing my thoughts, no doubt someone far more familiar with tax & company law will shortly point out why this isn't a good idea!

[BigDataPro]

Me and my wife hold 50% share each. We both take equal dividends and salary. What's your wife % of shares in your company?

[malvolio]

Me and my wife hold 50% share each. We both take equal dividends and salary. What's your wife % of shares in your company?

It's when the shares were acquired and how that matters. The Arctic case centred on Geoff and Diana Jones having equal shares from the outset. Gifting shares to the other half after company formation is the problem, since that changes from being a share in the risks of running a company to a beneficial right to income. Theoretically you could avoid that by selling the chares at a realistic valuation, but I suspect HMRC would see though that option. The OP needs formal advice on how best to proceed to be safe.

In your case, equal salary implies you do roughly similar levels of fee earning for the company, meaning the split shares are entirely reasonable anyway. If, however, that assumption is incorrect, then you may have a problem...

[northernladuk]

I have a cheapo accountant who has advised I seek advice somewhere else

There is a saying... a good accountant is not expensive. By going cheap you've thrown away a year of tax efficient payments that has lost you way more than a proper accountant would cost. Get rid of them and do it properly.

BUT... at the end of the day running your company is your problem. The accountant does accounts, you should run the rest of your own company. By not researching and understanding this you aren't meeting your legal duties to run your company properly. You should have understood what is possible when you started, and if you'd gotten a decent accountant you could have asked them about the detail.

Also, make sure you understand why you can pay your wife. You try justify it by saying she does FA, which I doubt anyway, but think about it logically. You are paying her 8k to do a 10 minute task. Don't think for one minute you are paying her a proper wage for the duties she carries out.

Time to understand your company and not just play tick box contracting.

One option might be to start another company, with the share structure you want, and novate any existing contracts to that company, allowing future payments to be made in the way you describe. You can either keep the old company running or slowly drain shareholders funds from it. What you probably can't do is close it down via any methods which give you a tax advantage, such as MVL, since that might be viewed as "phoenixing".

This is just me voicing my thoughts, no doubt someone far more familiar with tax & company law will shortly point out why this isn't a good idea!.

It might be the right thing to do (I don't know) but it's not technically good advice. You need to consider your audience. The OP has struggled with the absolute basics of a LTD and didn't try understand it from the off. To then tell them to do something more complex isn't technically good advice. If you had said 'What could be done is xx but employ a proper professional in the form of a good accountant and do it properly' then that would be good advice

[SueEllen]

There is a saying... a good accountant is not expensive. By going cheap you've thrown away a year of tax efficient payments that has lost you way more than a proper accountant would cost. Get rid of them and do it properly.

BUT... at the end of the day running your company is your problem. The accountant does accounts, you should run the rest of your own company. By not researching and understanding this you aren't meeting your legal duties to run your company properly.

There maybe another reason why the accountant acted like this.

There is a long thread about it.

You should have understood what is possible when you started, and if you'd gotten a decent accountant you could have asked them about the detail.

Sometimes you need to ask professionals the right questions the right way to get their knowledge out of them and to help stop them shafting you as they know you will ask them questions....

[hobnob]

One option might be to start another company, with the share structure you want, and novate any existing contracts to that company, allowing future payments to be made in the way you describe. You can either keep the old company running or slowly drain shareholders funds from it.

At that point, you'd need to be careful of "associated companies".
New "Associated Companies" Rule for CT Tax Relief Rate - Contractor UK Bulletin Board