New company strucure - recommendation please

[matrixfan]

I am about to switch from using an umbrella company to forming my own limited company.

I know I need to talk to an accountant but wanted to check with you first if you have any recommendations

I have a spouse who does not work so was thinking of making her an employee and a shareholder in the company..is this still a good option under the new tax rules? also was thinking of forming the company with 100 issued shares £1 each, is this OK?

Please let me know what you think.

Many thanks

[Maslins]

Having a spouse with 50% of the shares is still ok tax avoidance. HMRC challenged it recently and lost in the High Court (Arctic Systems case if you want to Google it).

HMRC have since talking about creating some income shifting rules to prevent that type of setup working in future, but the rules were tosh and never implemented.

So basically yes, you can do everything you've suggested. Only caveat is that you'll need to justify wages to your spouse. Assuming you're only likely to pay them ~£5.7k as you will yourself, it's not too hard to justify a wage of that size.

Doing things that way, on profits of up to around £100k you can get ~81% in your pocket.

[BolshieBastard]

Having a spouse with 50% of the shares is still ok tax avoidance. HMRC challenged it recently and lost in the High Court (Arctic Systems case if you want to Google it).

HMRC have since talking about creating some income shifting rules to prevent that type of setup working in future, but the rules were tosh and never implemented.

So basically yes, you can do everything you've suggested. Only caveat is that you'll need to justify wages to your spouse. Assuming you're only likely to pay them ~£5.7k as you will yourself, it's not too hard to justify a wage of that size.

Doing things that way, on profits of up to around £100k you can get ~81% in your pocket.

IIRC the Arctic case was an IR35 investigation which went to the High Court and not S660 (income shifting).

But, you're correct further income shifting regulations were shelved. And yes, if you have a spouse, its a good idea to make her a shareholder \ director \ employee.

My missus does all the admin stuff for 'our' limited co and is first point of contact for accountant, agents and hmrc etc.

[thunderlizard]

IIRC the Arctic case was an IR35 investigation which went to the High Court and not S660

YRI

[malvolio]

IIRC the Arctic case was an IR35 investigation which went to the High Court and not S660 (income shifting).

But, you're correct further income shifting regulations were shelved. And yes, if you have a spouse, its a good idea to make her a shareholder \ director \ employee.

My missus does all the admin stuff for 'our' limited co and is first point of contact for accountant, agents and hmrc etc.

Arctic was all about the mis-application of S660a to a married couple. IR35 was never any part of it. As the law now stands, there is no reason at all for a married couple not to have a 50/50 share ownership structure, with the one caveat that there is no point doing so if the "passive" spouse will start to pay higher rate tax as a result of the dividend income.

However, the Family Business Tax option (I hate the term "Income Shifting" about as much as I hate "Personal Service Company"; it's simply NL propaganda) is still on the table. They only decided to park it, not give up any idea of ressurecting it.

[Mr.Whippy]

And yes, if you have a spouse, its a good idea to make her a shareholder \ director \ employee.

My missus does all the admin stuff for 'our' limited co and is first point of contact for accountant, agents and hmrc etc.

Do most people (with a non-working spouse) do this? My Mrs is at home looking after our little 'un. She currently has no association with MyCo, other than being the registered secretary at Companies House so she can sign all the necessary paperwork to close up MyCo and get funds distributed should I get hit by a bus........

I was told that it was kind of frowned up by hmrc as it was pretty much blatant tax evasion, but if that isn't the case should I perhaps reconsider and make her an employee/director?

[malvolio]

It's only evasion if it's illegal. This isn't, and we have the Law Lords to cite as the reference if HEctor tries to make a fuss. Anyway, if YourCo stops trading, your other half's total income goes with it. I think that demonstrates a certain degree of mutual interest in it, don't you?

You don't have to give her a salary if she does not work for YourCo, but you can give her shares and hence dividend income and effectively use both your tax free allowances.

[Maslins]

@BolshieBastard - Arctic Systems had nothing to do with IR35! It all surrounded husband doing all the work, wife doing basically nothing (for the business), but them being 50:50 shareholders and taking dividends in line with their shareholdings. HMRC argued the husband was simply giving his income to his wife, so he should be taxed on it. The Lords disagreed.

The most famous case on IR35 to date is the Dragonfly case, perhaps you're confusing it with that.

@Mr.Whippy - It is frowned upon by HMRC, that's why they challenged it all the way to the House of Lords...but HMRC lost, so (for the time being at least) it's a perfectly valid thing to do.

[TheFaQQer]

@BolshieBastard - Arctic Systems had nothing to do with IR35! It all surrounded husband doing all the work, wife doing basically nothing (for the business), but them being 50:50 shareholders and taking dividends in line with their shareholdings. HMRC argued the husband was simply giving his income to his wife, so he should be taxed on it. The Lords disagreed.

I thought that Mrs Jones actually DID quite a bit for the business, which made the case an even bigger mockery than it already was.

[moorfield]

They only decided to park it, not give up any idea of ressurecting it.

Yes and I fear they will do so now that the newsreaders are all doing it and there are articles in the Sundays every week about how you can save tax in the recession etc. etc. by "going freelance".