Limited company and income shifting advice

[drkash]

I would be grateful for some advice. I am working as an independent locum doctor and am looking at forming a limited company for all my income (probably for 1-2 years). I will be employing my wife as secretary with a small part time salary. She works full time with the council, but will be starting maternity leave in the coming months.

I am aware of the current legal loop hole with regards to income shifting. My accountant has advised me that I can include my wife as part of the limited company as a 50/50 shareholder (and so income shift the dividends). However another accountant has advised me against this as my wife does not contribute towards the income of the company (ie she does not work as a doctor).

Can anyone please advise me if this would be ok and legal? Thanks

[SackmanandCo]

It is legal but has some risk that HMRC will challenge. My personal view is that income shifting is relatively low profile. HMRC have much bigger fish to fry.

[Wanderer]

Can anyone please advise me if this would be ok and legal? Thanks

It's perfectly legal, though the HMRC don't like it and tried to stop it with the Artic Systems case (which they lost) and then the government announced that they were going to legislate against it (which they never did).

Some accountants recommend against it on the basis that the government may retrospectively change the law making you liable for the tax you avoided by income shifting. In my mind, the worst that would happen is that you would have to pay the tax you avoided paying by income splitting (which you would have had to pay anyway).

[Gonzo]

I agree with Wanderer.

The accountant is probably being more cautious than is necessary now. HMRC don't like people doing this and it did look a certainty that the previous Government would close it down as an option, probably retrospectively too, hence the accountant's caution.

They never did and it remains perfectly legal.

That is a fantastically apposite nickname by the way.

[TheFaQQer]

I would disagree slightly with wanderer - the worst that can happen is that you have to pay the tax that you evaded, plus interest, plus penalties.

Assuming that it's tax evasion that HMRC chase you for. There is no indication that HMRC will be any more sensible under this shower than the last lot.

[SackmanandCo]

Highly unlikely that HMRC would make it retrospective.I dont think it is on the horizon in any case.

[lje]

Highly unlikely that HMRC would make it retrospective.I dont think it is on the horizon in any case.

Why wouldn't they make it retrospective? They seem keen on doing that recently.

[malvolio]

Why wouldn't they make it retrospective? They seem keen on doing that recently.

Following Arctic, any go at implementing income shifting (or a Family Business Tax... ) would be new legislation, which cannot be retrospective. The BN66 thing was (in HMG's eyes at least) a clarifying reinterpretation of existing legislation.

[northernladuk]

I would disagree slightly with wanderer - the worst that can happen is that you have to pay the tax that you evaded, plus interest, plus penalties.

Assuming that it's tax evasion that HMRC chase you for. There is no indication that HMRC will be any more sensible under this shower than the last lot.

And surely once they have their teeth in they will go over everything with a fine toothed comb this time and have you top of the list for another visit every few years after this as well.

[SackmanandCo]

crikey!

they simply dont have the resources to do what you fear.

they are much more risk profiled these days. this is in part probably why they are reviewing IR35-they have never had a lot of joy from it, so better for them to focus on other industries ie doctors, dentists, construction industry.