Income shifting - Is this still a problem?

[Wanderer]

You can give divi's to share holders. That bit is black and white and totally acceptable. To give divis to someone who then puts it back in your pocket with the sole intention of avoiding paying tax is not.

I don't see that it's a "loophole" or an "exploit". Parliament have the opportunity to change the law and they decided not to. Perhaps because many MPs are also business people with multiple shareholders too. Perhaps they didn't want to be accused of bringing in a "family business tax". Who knows. HMRC don't like that but the fact is that parliament make the laws and we all have to abide by them.

If my wife took a dividend and used it to pay off a chunk of our joint mortgage then what happens? Is that permissible or you have to try and "launder" this money somehow before it becomes a joint asset? When does the dividend stop being my wife's "personal money" and legally start being our joint property as married couple? Would paying the dividend into her personal bank account one day and then transferring it to a joint account the next day be acceptable?

The whole thing is so full of holes, its just ridiculous. Joint account or personal account, I can't see what the difference is.

Now if it was your granny that you were paying a dividend to then that's a different story...

[psychocandy]

I don't see that it's a "loophole" or an "exploit". Parliament have the opportunity to change the law and they decided not to. Perhaps because many MPs are also business people with multiple shareholders too. Perhaps they didn't want to be accused of bringing in a "family business tax". Who knows. HMRC don't like that but the fact is that parliament make the laws and we all have to abide by them.

If my wife took a dividend and used it to pay off a chunk of our joint mortgage then what happens? Is that permissible or you have to try and "launder" this money somehow before it becomes a joint asset? When does the dividend stop being my wife's "personal money" and legally start being our joint property as married couple? Would paying the dividend into her personal bank account one day and then transferring it to a joint account the next day be acceptable?

The whole thing is so full of holes, its just ridiculous. Joint account or personal account, I can't see what the difference is.

Now if it was your granny that you were paying a dividend to then that's a different story...

Surely once its proven to be actually going to the wife (i.e. even going to the effort of paying into her own account) then what she does with it afterwards is sod all to do with HMRC. If she chooses to transfer it into joint account then its none of their business?

Anyway, how'd they know? Surely HMRC have no right of access to someones personal account in this circumstance?

[northernladuk]

Surely once its proven to be actually going to the wife (i.e. even going to the effort of paying into her own account) then what she does with it afterwards is sod all to do with HMRC. If she chooses to transfer it into joint account then its none of their business?

Anyway, how'd they know? Surely HMRC have no right of access to someones personal account in this circumstance?

How do think they investigate tax evasion etc etc. They are interested in your companies tax carry ons as well as your personal ones as well remember. They don't have access to it but if they investigate you on suspicion of anything you have to prove you aren't being naughty.

The whole thing is so full of holes, its just ridiculous. Joint account or personal account, I can't see what the difference is.

You are absolutely right it is full of holes, am just playing devils advocate and again a question to answer your question. Why do you give your wife dividends? To avoid paying the higher rate of tax. Do you think hector is happy with this and he designed the system to let us do this.

There is a huge debate to be had I agree but still for me if I can keep it black and white then do what you can and be very aware of your actions. Giving your wive 6k and she transfers it straight to you could have very different consequences to giving her the money and it going in to a joint account. The tiny details can make all the difference I think.

[BolshieBastard]

Im raising this whole issue about separate bank accounts with my accountant when I see him soon. He's normally bob on with this kind of thing so it will be interesting on their opinion.

[psychocandy]

How do think they investigate tax evasion etc etc. They are interested in your companies tax carry ons as well as your personal ones as well remember. They don't have access to it but if they investigate you on suspicion of anything you have to prove you aren't being naughty.



You are absolutely right it is full of holes, am just playing devils advocate and again a question to answer your question. Why do you give your wife dividends? To avoid paying the higher rate of tax. Do you think hector is happy with this and he designed the system to let us do this.

There is a huge debate to be had I agree but still for me if I can keep it black and white then do what you can and be very aware of your actions. Giving your wive 6k and she transfers it straight to you could have very different consequences to giving her the money and it going in to a joint account. The tiny details can make all the difference I think.

Yeh. Maybe transferrring from her personal account to yours looks dodgy but transferring back to joint account doesnt? Is that what you're saying?

Surely if money is going personal bank account and then she sticks it in joint account, its still her account and the dosh can be accessed/spent by here... It might be easier for instance to access it in this way for the lady in question.

I can see if its transferred into account straight away for which she no longer has access then it dont look good.

Personally, I plan to open a sole account for the mrs and get the dosh paid into there. Then she'll (hopefully) stick it into our joint account where all the bills etc get paid from.

[Craig@Clarity]

It's very interesting to follow this debate on where the dividend money should end up. My opinion is that it's irrelevant whether the money goes into your spouse's personal account or a joint account. The money can in fact go into whichever account the shareholder nominates.

What is important in my view and what also counts for tax purposes is the dividend declaration and voucher. This supports the dividend payment. Ultimately, if the dividend is declared to your spouse, it is taxable as their income regardless of if it goes into a joint account or not.

[psychocandy]

It's very interesting to follow this debate on where the dividend money should end up. My opinion is that it's irrelevant whether the money goes into your spouse's personal account or a joint account. The money can in fact go into whichever account the shareholder nominates.

What is important in my view and what also counts for tax purposes is the dividend declaration and voucher. This supports the dividend payment. Ultimately, if the dividend is declared to your spouse, it is taxable as their income regardless of if it goes into a joint account or not.

Fair point. After all the HMRC dont come after you just because your Mrs gets paid into a joint bank account?

In fact, is there any reason why the Mrs couldnt get paid into an account in someones elses name? Employers unlikely to give a toss. And I cant see HMRC saying its your income cos its gone into your account.

[Pondlife]

Fair point. After all the HMRC dont come after you just because your Mrs gets paid into a joint bank account?

In fact, is there any reason why the Mrs couldnt get paid into an account in someones elses name? Employers unlikely to give a toss. And I cant see HMRC saying its your income cos its gone into your account.

Really, You can't see them saying that it's just a paper exercise and that the money was paid to you since it went directly to you.

I'm not suggesting for a moment they would win if the paperwork was in order but to be so naive as to think they wouldn't argue it is a bit

[Danielsjdaccountancy]

Great thread and a hot topic amongst accountants also.

Agreed there is no law in place to stop income shifting and the longer it goes on the less doubt there is of it being introduced. However, HMRC are not fans of income shifting and never will be so we must hold this caution.

Having spoken to tax advisors used by PCG they would happily tell you that forming a company with 2 shares 1:1 ratio is an sign to the revenue of a possible husband:wife arrangement and is not recommended.

I advise that you take some consideration in assigning your shares split and have the contractor as a main beneficiary of dividends, after all he is doing all the work, so perhaps a 70:30 split is better. This shows to HMRC that you have thought about your share split and it is less obvious to them than the standard 2 shares.

[psychocandy]

Bit confused probably cos I'm dull....

OK. So income shifting in this way has not yet been legislated against and in fact HMRC were defeated in the Arctic case.

So why do people like qdos sell 660a insurance?