Changing wifes shareholding

[psychocandy]

My advice would to decide on a split when the company is formed and then leave it.

Every case is different but if the spouse becomes liable for higher rate tax then this is tax the other spouse would probably have paid in any case.

The ability to split the dividends is a 'bonus' in any case so I would not get too worked up about the split once it has been decided on.

Alan

Yes. Maybe a bonus as a way of saving tax but I can see how people want to know one way or the other.

After all, what do you do, be cautious and not change the shareholding and pay more tax?

Its a pity that things aren't a bit more black and white. Too many ifs, they mights, etc with HMRC for my liking.

[northernladuk]

I would like to change the shareholdings to something like this:

April 2012: 70/30
April 2013: 60/40

Is there anything wrong with increasing her shareholding gradually like this?

Are you forgetting that you will have to readjust it back to the current level the year after when she is back which would make it clear you have altered it to avoid tax? If you had left it at 60/40 you could have argued a geniue change in holdings for business reasons. Unlikely to stand up when you get investigated of course.

[psychocandy]

Are you forgetting that you will have to readjust it back to the current level the year after when she is back which would make it clear you have altered it to avoid tax? If you had left it at 60/40 you could have argued a geniue change in holdings for business reasons. Unlikely to stand up when you get investigated of course.

Yeh. Thats the thing. We all know its tax avoidance but then so is paying yourself 7K salary isnt it surely? HMRC ain't dull - they know this too surely ???

Is swapping the split every once in a while worse than paying yourself an artificially low salary?

NLUK - Are you arguing then that you can change what you like as long as its for a business reason but not to save tax? If so, what's the business reason for 7K salary? Surely its just to save tax. Only difference is once set you can leave it alone.

[northernladuk]

Yeh. Thats the thing. We all know its tax avoidance but then so is paying yourself 7K salary isnt it surely? HMRC ain't dull - they know this too surely ???

Is swapping the split every once in a while worse than paying yourself an artificially low salary?

The artificially low salary is well documented and stood the test and is accepted. Splitting isn't and an area that can be clamped down on. It isn't as black and white as one is ok the other isn't, particularly in the current climate.

NLUK - Are you arguing then that you can change what you like as long as its for a business reason but not to save tax? If so, what's the business reason for 7K salary? Surely its just to save tax. Only difference is once set you can leave it alone.

As per 1st comment. You can't compare one against the other. They are completely different aspects of tax avoidance so just can't be compared in a simple, this is ok this isn't. Don't get yourself in a knot trying to justify one against the other. It is the way it is.

It is deemed acceptable to share in the success of the main earner using this split but that doesn't mean you can use it carte blanch to avoid tax. The fact most contractors see it as nothing more than a tax avoidance vehicle and forget the spirit is why it is such a hot topic IMO. We are our own worst enemy in this one. This didn't get brought up in the recent scandals in the news but just imagine the storm if Ed Lester had be found to be doing this as well.

[psychocandy]

The artificially low salary is well documented and stood the test and is accepted. Splitting isn't and an area that can be clamped down on. It isn't as black and white as one is ok the other isn't, particularly in the current climate.



As per 1st comment. You can't compare one against the other. They are completely different aspects of tax avoidance so just can't be compared in a simple, this is ok this isn't. Don't get yourself in a knot trying to justify one against the other. It is the way it is.

It is deemed acceptable to share in the success of the main earner using this split but that doesn't mean you can use it carte blanch to avoid tax. The fact most contractors see it as nothing more than a tax avoidance vehicle and forget the spirit is why it is such a hot topic IMO. We are our own worst enemy in this one. This didn't get brought up in the recent scandals in the news but just imagine the storm if Ed Lester had be found to be doing this as well.

Good point about the 7K.

With the shares thing, surely the only reason we all do it is to split the income and thus avoid tax? Otherwise, why bother?

Would you really bother just so you're partner can have a share in the business?

But yes, if Ed Lester had been doing that it there would have been uproar.

[northernladuk]

Good point about the 7K.

With the shares thing, surely the only reason we all do it is to split the income and thus avoid tax? Otherwise, why bother?

Exactly!!!

Would you really bother just so you're partner can have a share in the business?

But yes, if Ed Lester had been doing that it there would have been uproar.

Read CUK

It gives you examples of situations where it could be argued to be acceptable to do this and 'may' show evidence of more than just income splitting.

Not sure why I am arguing the case, I think 99% cases of contractors splitting income shouldn't be allowed personally as there are not many other methods of avoidance as blatant as this around anymore. Every post we have of someone wanting to use their wives allowance is evidence of this. If that isn't pure abuse of this situation I don't know what is and can't believe they haven't closed it a long time ago. If someone came on and asked about making their wives part of the business I may think otherwise... but they don't. By asking this stuff in public forums you could also argue we have made a rod for ourselves in public...

I think it should be correct that a spouse/partner should benefit from supporting directors of small companies to a certain amount for the support they give but I do not think that this should equate to 50% of the profits. That is purely my opinion and certainly don't want to start a huge debate on the whole sorry affair.

[psychocandy]

Yes. I agree with NLUK. Anyone who says they're givng their Mrs shares to be 'part of the business' is talking crap.

Like you said, its done purely and simply for tax purposes. I guess its one thing that the Arctic case has allowed us to do but, like you say, it is slightly dodgy.

To be honest, I've been thinking about changing the split from 50/50 to slightly more in my favour to take into account different income levels for the next few years. However, not sure I will now having thought about it...

50/50 is easy to explain. You and your partner run a business and split it - job done. You change it to 60/40 a year later and surprise, surprise it works out great for tax purposes. Not so easy to justify the change I guess......

Im waiting to see what my accountant says to be honest because they're pretty good.

My first accountant was a complete twat though. Told me I could only stick Mrs down for 25% of the shares because she didnt do enough work for the company.

[THEPUMA]

If she is at home more, perhaps she is doing more for your business and could be paid a salary as such. If the salary were below £624 pcm, this would have the same tax effect as a dividend. This does need some planning in advance though, if she is not a director, as she would need to be paid regularly rather than in a lump sum, in order to avoid NIC.

PUMA

[northernladuk]

Yes. I agree with NLUK. Anyone who says they're givng their Mrs shares to be 'part of the business' is talking crap.

Like you said, its done purely and simply for tax purposes. I guess its one thing that the Arctic case has allowed us to do but, like you say, it is slightly dodgy.

To be honest, I've been thinking about changing the split from 50/50 to slightly more in my favour to take into account different income levels for the next few years. However, not sure I will now having thought about it...

50/50 is easy to explain. You and your partner run a business and split it - job done. You change it to 60/40 a year later and surprise, surprise it works out great for tax purposes. Not so easy to justify the change I guess......

Im waiting to see what my accountant says to be honest because they're pretty good.

My first accountant was a complete twat though. Told me I could only stick Mrs down for 25% of the shares because she didnt do enough work for the company.

I am not quite understanding this. You say you agree that anyone that says the wife is part of the business is talking crap but they you say you have a 50/50 arragement in place and your accountant is a twat for advising not to give her a max of 25%?

50/50 isn't easy to explain at all when one is an earner and the other is a tax heaven. In the eyes of HMRC this is wrong. I thought this statement covered that...

Q: What factors, in terms of how I run my business with my spouse, indicate that I may get caught by s660, or the proposed (but shelved) family business tax?

Turning to the specific issues of s660A, particular difficulty arises where a company is formed and the income generated is really from the work of one of the spouses but the profits are shared between them. Typical arrangements are where the income generating spouse takes a small, ‘uncommercial’ salary thereby maximising the dividend that is shared with the other spouse, usually 50:50.

Might have read your post wrong though.....

[SueEllen]

My first accountant was a complete twat though. Told me I could only stick Mrs down for 25% of the shares because she didnt do enough work for the company.

That's unfair.

Every accountant has a different professional opinion due to how they intepret what they read, and the other types of businesses they deal with.

For example if your ex-accountant dealt with other businesses where it was clear the wife did a lot then s/he could be right from their experience saying your wife didn't do very much so shouldn't have half.

Anyway our tax laws are purposely grey so HMRC can try and exact the most out of us if they feel like it.