No of shares allocated to dear wife (or husband)?

[psychocandy]

I agree that MSC has no impact on share proportions, maybe your accountant is thinking about Section 660a...?

No - its me thats wrong. Yes, its section 660a.

[psychocandy]

Wrong' You just pay yourself enough divis to reach the limit and retain the rest in the company for your warchest.... you are going to pay yourself the minimum you can to get a warchest going aren't you?

Yes. Salary is £7072. Then obviously I'll be paying myself expenses.

I do still need some dividends to live though.

However, I think I see what you're saying though. No point paying yourself a shedload in one tax year and personally accrusing 40% tax.

Better to pay the 20% CT on dividends (up to max) and 20% CT on retained company profits. Then these can be doshed out as dividends in lean spells. (with 20% tax already paid).

However, does the existence of retained profits in this way (or warchest as you call it) prevent the claiming of any type of unemployment benefit in times of no contract? Not that its a great amount though.

[psychocandy]

http://www.contractoruk.com/s660/

[zamzummim]

Dividends are treated as having already been taxed since the company has already paid CT on the profits they arise from. Since CT is 20% and basic rate tax is 20% and the laws against dual taxation prevent hector taxing the same cash twice, any divi's paid up to the earnings limit for lower rate tax (£~38k iirc) is effectively tax free as long as you fill out the appropriate paperwork when paying them. Anything paid over the tax limit is then due tax on the difference. If your divi takes you 10k over the limit you pay 40% tax less the 20% already paid. I forget the maths of the top of my head but in effect you pay 25% of the amount over the limit as income tax.

Thanks, so the issue is not paying a partner a salary, but as a shareholder or as a second director??

[TykeMerc]

Thanks, so the issue is not paying a partner a salary, but as a shareholder or as a second director??

Shareholder specifically. Dividends declared are split in equal parts to every share, so if the company has 100 shares held 50/50 by the contractor and spouse and a dividend of £10 per share is declared £500 goes to each person and counts against their annual income.
The point of splitting shareholding to a partner is to exploit their income allowance without going over the higher rate thresholds.