Income Splitting with Spouse....

[v8gaz]

I have some BT shares - does that mean that I have to shin up a telephone pole before I can claim my divis? Get real! Shares entitle the holder to a share in the profits of the company (can you see what they did there when they named them?) - no matter what the shareholder does or does not do.

[Wanderer]

So to sort this out....

1. ALLOT 9 Ordinary Shares (I currently only have 1). With a value of X which I pay to company.
2. Gift 1 share to my wife.
3. Make sure shareholders are registered.

?

You have to get professional advice. It is very likely you are looking at avoiding thousands of pounds worth of tax here so make sure you get it right. From my limited understanding, it works something like this:

Dividends are paid based on how many shares each person holds. So if the company pays £1000 in dividends and there are two shareholders with 1 share each then each shareholder takes £500.

You may also be able to issue "preference shares" so there are two classes of share and then you (as director) can vote to give one class of share a dividend of (say) £800 and the other class of share a dividend of £200.

If your spouse has no other income then you may be best to just have one share each and split the dividend 50/50.

The Arctic Systems case appears to have hinged on the fact that the shares were "Ordinary shares" which came with voting rights rather than just being a gift of income. I don't know if that is still significant, your advisor will be able to tell you which type of shares you want.

[Retro]

I have some BT shares - does that mean that I have to shin up a telephone pole before I can claim my divis? Get real! Shares entitle the holder to a share in the profits of the company (can you see what they did there when they named them?) - no matter what the shareholder does or does not do.

Quite right, my earlier post was referring to salary not to dividends.
Dividends do not currently have to be justified so we wait to see how the S660 rules will be changed.

[malvolio]

Quite right, my earlier post was referring to salary not to dividends.
Dividends do not currently have to be justified so we wait to see how the S660 rules will be changed.

They won't be. S660 has been around since the 30's. S660a specifically deals with the case of people (such as Jack Hawkins the actor) passing their income to their children who didn't have to pay tax on it, while retaining control of how it was spent. Hector pressed Arctic primarily on the effects of the change to separate taxation for men and women, which was never the intent of the original act: in fact, at the time it was written, the wife's income belonged to the husband anyway so the question didn't arise.

The end result of Arctic is that spouses can share dividend income from the co-owned business regardless of how they were obtained and whether or not they are ordinary or preference shares, and that income will be taxed separately just like any other income.

Some brave chancellor may try to write a new law to get the desired effect. They will find it very difficult to get such a law passed.

[ChimpMaster]

Glad I gave you a laugh... but in my work there is no acceptable margin of error. Maybe sloppy code and documents or whatever it is you do is OK in your job.

and that is but one of her tasks but in my opinion a valuable one directly linked to revenue.

Only to provide constructive criticism, and not to knock you back, I have to say I agree with NLUK.

Seriously, you're going to have to come up with a lot more than just proof-reading, no matter how valuable a task it is to your business.

[Clare@InTouch]

Only to provide constructive criticism, and not to knock you back, I have to say I agree with NLUK.

Seriously, you're going to have to come up with a lot more than just proof-reading, no matter how valuable a task it is to your business.

When justifying anything to HMRC it's useful to be able to compare it what would happen if the person in question were an unconnected third party. If you're paying a salary of £6,000 a year, is this what you'd pay to someone who wasn't your wife? What's the market rate for proof reading these days, and how does it compare to what you're paying given the hours worked?

It's the same logic that can be applied to selling/buying of assets - if you want to sell your 2 year old computer to the company and can prove it sells on Ebay for £250 then HMRC would be hard pressed to object. If you decided to pay yourself £2,500 then they'd have every excuse to argue it's excessive.

[prozak]

Only to provide constructive criticism, and not to knock you back, I have to say I agree with NLUK.

Seriously, you're going to have to come up with a lot more than just proof-reading, no matter how valuable a task it is to your business.

Thank you.

I appreciate it. Regardless of how my reply came across. It was not intended to sound as harsh as it did.

[THEPUMA]

They won't be. S660 has been around since the 30's. S660a specifically deals with the case of people (such as Jack Hawkins the actor) passing their income to their children who didn't have to pay tax on it, while retaining control of how it was spent. Hector pressed Arctic primarily on the effects of the change to separate taxation for men and women, which was never the intent of the original act: in fact, at the time it was written, the wife's income belonged to the husband anyway so the question didn't arise.

The end result of Arctic is that spouses can share dividend income from the co-owned business regardless of how they were obtained and whether or not they are ordinary or preference shares, and that income will be taxed separately just like any other income.

Some brave chancellor may try to write a new law to get the desired effect. They will find it very difficult to get such a law passed.

As I understand it, that is the intention of the OTS. I agree that it will be difficult to draft the legislation. They have already tried and failed once.

PUMA

[Fred Bloggs]

As I understand it, that is the intention of the OTS. I agree that it will be difficult to draft the legislation. They have already tried and failed once.

PUMA

I wonder if they'll manage it this time? I must admit to being rather gloomy at the prospects for those of us running husband and wife Ltd Co's with one main revenue earner.

[monobrow]

They won't be. S660 has been around since the 30's. S660a specifically deals with the case of people (such as Jack Hawkins the actor) passing their income to their children who didn't have to pay tax on it, while retaining control of how it was spent. Hector pressed Arctic primarily on the effects of the change to separate taxation for men and women, which was never the intent of the original act: in fact, at the time it was written, the wife's income belonged to the husband anyway so the question didn't arise.

The end result of Arctic is that spouses can share dividend income from the co-owned business regardless of how they were obtained and whether or not they are ordinary or preference shares, and that income will be taxed separately just like any other income.

Some brave chancellor may try to write a new law to get the desired effect. They will find it very difficult to get such a law passed.

Mal/All

what's your view on the "joint account" connundrum? Wasn't a case lost by a husband and wife recently because the wifes divi was paid into a joint account that the husband had access to?

Of course there is an easy fix to this, but how seriously should we take this?

thanks,