National Minimum Wage or £97 pw?

[ASB]

Sounds like a settlement to me. Do your kids contribute to the business in a significant way? Are they of legal capacity?

Small point - assuming they are minors. Income generated by children in excess of £100 p.a. is taxed to the donor where the donor is a parent under the settlements legislation anyway.

[NewBoy]

Sorry, I don't understand...

Am I considered the donor when it is their shares that they own in a Limited Company?

I don't actually mind if I am taxed on this as the point of setting it up was not to avoid tax or pay less, it was my way of setting up a savings plan for them...i.e. rather than me paying £100 a month into a bank account for them, they get their dividend each year which they can save at the moment or spend when they get older...

Obviously as they are minors, if they (or me) are not taxed then that is great as it is a tax efficient way of saving, but if they are then I've not really lost anything so thats cool.

[IR35 Avoider]

I don't actually mind if I am taxed on this

...you can't afford to be uncertain, you need to know as you need to declare the income on your tax return.

I think making children shareholders is asking for trouble - there's no legitimate advantage and HMRC will assume that you're up to something and investigate. Even if you've declared all their dividends as your income on your tax return, who knows what else they will find? The inspector is going to assume you thought this was advantageous to do for tax reasons, and that a person who's made one mistake may have made others he can penalise them for.

[ASB]

Sorry, I don't understand...

Am I considered the donor when it is their shares that they own in a Limited Company?

I don't actually mind if I am taxed on this as the point of setting it up was not to avoid tax or pay less, it was my way of setting up a savings plan for them...i.e. rather than me paying £100 a month into a bank account for them, they get their dividend each year which they can save at the moment or spend when they get older...

Obviously as they are minors, if they (or me) are not taxed then that is great as it is a tax efficient way of saving, but if they are then I've not really lost anything so thats cool.

Have a trawl on HMRC website but basic guide for taxation of minor children:-

1) Source of funds to acquire the asset (or the asset itself) is not a parent.

In this case the child gets the normal tax allowance and is taxed just the same as anybody else. [e.g. grandad gives them some shares in abc or similar, or some money and it is used to buy shares in abs or the money is just stuffed in their account]

2) source of fund (or asset itself) is a parent

If the income generated is < £100 p.a. then it is treated as above. [This is infact £100 per parent per child - based on the source of asset].

If the income generated is > £100 p.a. then ALL the income should be taxed at the parents highest marginal rate - it should be declared on their tax return but I don't know where it is supposed to be put.

Hypothetical example which might be useful:-

you give 10% of me ltd to sprog.

You declare divis of 100k.

You keep 90k
Sprog gets 10k.

10k > £100. You declare 100k on you tax return not 90k.

This might be a good time to point out that minor children cannot own shares in their own right. You should establish a bare trust for them. Ideally you should send the trust document to the relevant inland revenue office (trust and settlements) and get it stamped.

It is also possible that setting up a discretionary trust or similar may be advantageous if you are looking at reasonably substantial sum.

[IR35 Avoider]

Various comments about pensions

215k pension contributions: Questionable. Anything in excess of 100% of salary would appear to be in the inspectors gift (not saying you can't just that is's not certain relief will be available).

I need to do my pension soon. Is 100% of salary definitely OK? Did they finally get around to publishing the rules or is it still deliberately vague?

£215k is the current annual allowance or 100% of salary whichever is the lower. AAnd yes, you can make the contribution through the company but this will not necessarily be an allowable business expense - this decision rests with the Local Inspector of Taxes.

It's to do with the contribution being "wholey and exclusively for the purpose of the trade or business" and if you pay yourself £10K pa and try and put a pension contribution through for, say £100k and expect Corp relief on it, it just isn't going to happen. There has been some recent clarification on this from HMRC which basically says company contribs are more flexible than personal contribs but don't take the p*ss.

I think the latest PCG advice based on the HMRC final draft published in the last few weeks is that if you own a one man company and you bring in all the fees, your company can pay as much as you like into a pension, up to 215K. You don't have to worry about a link with salary at all.

There has at no stage been anything from HMRC to suggest 100% is a limit for company contributions. This was just speculation by outsiders as to what a reasonable contribution would be, at the time that earlier HMRC drafts were creating uncertainty about maximum allowable employer contributions. Presumably this speculation was based on the fact that 100% is the limit for a personal contribution.

[oraclesmith]

Re. Minors owning shares and bare trusts. I believe the HMRC are looking to tighten up this area in the future as it is a good one for avoiding inheritance tax.

[ASB]

Re. Minors owning shares and bare trusts. I believe the HMRC are looking to tighten up this area in the future as it is a good one for avoiding inheritance tax.

Wouldn't surprise me. A bare trust can be created by simple designation.

It would be really easy for me as trustee to my minor kids to simply nominate all my assets in this manner and then if I decided I need them back transfer them. Of course if I die in the meantime they wern't mine.....

[liley]

Decent Director's services contract

[QUOTE=THEPUMA] If you’ve got a decent contract and your accountant tells you it is not caught by IR35 then you’ve got nothing to worry about./QUOTE]


Can you refer me a decent director's service contract? Where can I find it? Cheers.

Ps.: If you swap word "salary" with word "fee" in your contract it is less likely for the taxman to have a doubts on your slave payment.

[Denny]

you're looking at the gazelles, trying to pick out the weakest member of the herd to make an easy kill. Do you go for the strongest?

.

Was it wise to attend the David Attenborough school of accountancy?

CHINESE PROVERB SAY.

The law of the hungry lion to slay the weakest gazelle applies to all but tax inspections, whereby the wounded gazelle attacks the greedy lion.

[THEPUMA]

I was referring to a decent contract between your company and your agency/end client. If you want one of those, the PCG is probably your best bet.

They may also be able to offer you a service contract but remember that if this is in place, you are subject to the National Minimum Wage legislation.