Dividend Payments to Shareholders

**Wanderer** · 28 April 2011, 20:23

Originally posted by SaveMoney View Post

I was assuming, I could make family members as shareholders and pay them dividend to escape tax if I took all of the dividends.
But when I talked with my accountant, he mentioned as making shareholders and paying them dividends is only to save tax, HMRC wouldn't allow it. Anybody faced the same situation ?

I don't blame your accountant for recommending that you don't do this, on the face of it this is a very dodgy thing to do unless you are running a genuine family business.

My understanding is that you can make anyone a shareholder of your company and pay them dividends, however if you do this then the dividend income that other shareholders receive belongs to them not you. Ahh, but they could just give the money to you in cash, buy a car with the money and give it to you to use, let you live in the family house rent free, put it in a special bank account in their name and give you the ATM card so you can take out the money or some other clever scheme to launder the money? Yeah, I'm sure the tax man has been there seen that.

If you got investigated and he saw what you were doing then he would go ballistic because he would immediately suspect that the shares were issued to connected people with the sole intention of avoiding tax. You would have to come up with a pretty good cover story otherwise the tax man would see right through it and you would have to pay back the tax avoided plus a penalty. If you get caught trying to bulltulip the tax man then the penalty is up to 100% of the amount for tax evasion.

You may also run into complications whereby you have to pay shareholders a dividend when you don't want to (eg, you have a falling out with them). A situation may also arise that other people have more shares than you and they could out vote you and take control of your company.

Probably the only exception to the above is doing this with your spouse which is quite common.