First timer's questions about dividend/salary allocation,and compnay incorporation

[sy8111]

Hi, all:

I am about to start contracting for first time and try to understand income allocation. I want to use dividend splitting, but it is said I and partner have to jointly own shares of ltd company at company incorporation. My company is already set up with myself as only share subscriber. Does it mean I have no chance to split dividend now?

Also, I find inniAccounts (online-accounting system) very interesting and much cheaper. Is there any advice not to use it instead of more expensive dedicated accountant?

Thanks a lot

[matzie]

Dunno about the income splitting question, but I wish I'd heard of inniAccounts before signing up with ClearSky. It's exactly what I was looking for and a *lot*cheaper. I'm pretty sure I'm locked in for a year... Not that I haven't had good service from CS so far (only incorporated last month) but at the price I'm finding myself wishing I'd looked around a bit more first before jumping parasol -> cs by default...

[xoggoth]

No, (unless there's some new rule since I set up yonks ago) you can issue more shares and it's pretty simple. For same class of share divi has to be proportional to holding but you can issue different sorts for other variations. Long time since I did it but think there's a form to fill. Companies House website will explain.

The accountant vs DIY argument has been raging on here for years and you won't find agreement. What I would say is, it always helps to do your own accounts approximately even if you don't do the final submission. Not only because accountants make mistakes but you can also make big mistakes in the information you give them. Knowing about the principles of accounting, doing trial balances etc helps to avoid that.

[Wanderer]

I am about to start contracting for first time and try to understand income allocation. I want to use dividend splitting, but it is said I and partner have to jointly own shares of ltd company at company incorporation. My company is already set up with myself as only share subscriber. Does it mean I have no chance to split dividend now?

If your company hasn't traded yet then it could still be considered to be "incorporation time" so go ahead and issue a share to your partner. Make sure they are "ordinary shares". You might have 100 shares of 1 pound each, you can issue one share each and leave the rest un-issued.

Dividends are pretty much divided according to how many shares each person holds. So if you have 1 share each then you get 50% of the dividend each. If your partner has a job and earns money other than the dividends then they may end up in the 40 or 50% tax bracket so be careful.

Also, I find inniAccounts (online-accounting system) very interesting and much cheaper. Is there any advice not to use it instead of more expensive dedicated accountant

I don't know of them but from the looks of it they aren't that much cheaper than an accountant. Who ever you go with, make sure you get an accountant that's happy to talk to you (face to face if required) so you can keep on top of your accounts. They will also give some proper advice, not dodgy stuff like you will read here!

You also need someone to prompt you to complete all the returns. Once you've had your first year's worth of accountants and annual returns done you can go it alone but be careful starting out - there's a lot of crappy paperwork to complete and if you don't do it all at the right times then you get hit for fines and penalties.

[sy8111]

All, thanks for reply. Your replies match my understanding of dividend / shares, and accountant. Thanks a lot.

[decentguy]

I remember adding my wife (who is currently on maternity) as 50% shareholder after the company was incorporated.

Not exactly sure what accountant did to add this but I am paying dividend to my wife.

Did you had to raise any extra paperwork/form to add your wife as 50% shareholder ? Please let me know so tht I can double check

[sy8111]

I remember Did you had to raise any extra paperwork/form to add your wife as 50% shareholder ? Please let me know so tht I can double check

I am not sure yet. When my company was incorparated days ago, I only put myself as only shareholder of 1 share. I am not sure if I can give o.5 share to my wife, or do I need to issue more shares first? I consulted Companies House, and they said if I need to issue more shares, simply file SH01 form, which can be downloaded here:

http://www.companieshouse.gov.uk/for..._of_shares.pdf

And dividend offering is simple after that, I think.

[Dearnla]

I am not sure yet. When my company was incorparated days ago, I only put myself as only shareholder of 1 share. I am not sure if I can give o.5 share to my wife, or do I need to issue more shares first? I consulted Companies House, and they said if I need to issue more shares, simply file SH01 form, which can be downloaded here:

http://www.companieshouse.gov.uk/for..._of_shares.pdf

And dividend offering is simple after that, I think.

If you look at section 3 of the form, it asks about class of shares. I have my missus set up as Class B shareholder, whereas I am class A. This means that I can pick and choose if I want to pay Divis to A or B shareholders.
I therefore keep track of who has earned what, so that we don't start hitting supertax bracket for PAYE.
As she doesn't work, I mean she's not employed, I mean she's a housewife, I can pay her more Divis than me and that helps keep us both out of the supertax bracket.

[sy8111]

If you look at section 3 of the form, it asks about class of shares. I have my missus set up as Class B shareholder, whereas I am class A. This means that I can pick and choose if I want to pay Divis to A or B shareholders.
I therefore keep track of who has earned what, so that we don't start hitting supertax bracket for PAYE.
As she doesn't work, I mean she's not employed, I mean she's a housewife, I can pay her more Divis than me and that helps keep us both out of the supertax bracket.

Thanks for information. I know there are share classes and will do more research. Cheers.

[matzie]

I didn't know about different share classes, and potentially voting different dividends amounts to them in this way, but since reading this I've been looking into it with a view to changing my current 50/50 share arrangement with my spouse to benefit from it.

BUT - I Just came across this page: Dividend waiver - when Settlements legislation may apply and especially the example at the bottom.

Mrs I owns A shares and Mr I owns B shares. Both A and B shares rank equally. Again profits of £25,000 are made and a dividend of £20,000 is voted on the B shares while no dividend is voted on the A shares.

Clearly by not voting dividends on the A shares (which rank equally with the B shares) this is a bounteous arrangement as the dividend paid on the B shares could only be paid if no dividend was declared in respect of the A shares. £16,000 of the dividend paid to Mr I is attributed to Mrs I under section 624 because the decision only to vote dividends on certain shares was a bounteous arrangement.

Now I'm not really sure about the ranking of shares side, but on the face of it this seems to suggest that using different share classes in this way is not a safe arrangement.