Income Splitting If Not Married

[DeludedAussie]

I think what you mean is your parents start a company, and employ you. Nothing wrong with that. If you work using an agency they may get a bit confused to see a retired person signing service contracts with them, but you may be able to work around that issue OK.

The problem I see is, whats the point?? As an employee you will pay the usual employment taxes of PAYE/NI. Are you thinking that your parents will pay themselves dividends from their company, and then gift them to you?? If this is right, then from this point onwards, I think you idea starts to lose traction.

Correct - It is my parents who will start a company and the recruitment agent will sign a new contract with them and pay them. I cannot see a problem with this either which is why I have come to this board to see what I am missing

The plan is for them to take 35K dividends each and a 10K salary which they WILL NOT gift to me. The money will be used by them

If anyone investigates us we can say that I am a simple employee and my parents are the shareholders - Even though they do very little they are the 'brains' behind securing a contract and using me as an employee.

In fact you could go so far as saying that this is entrepreneurial as they are creating jobs (albeit at the outset just for s a family member) !!!

[DeludedAussie]

I am a shareholder in BT but I don't do anything for the company.

Exactly - So why when a family member wants to be a shareholder do we go up in arms on this idea??

[northernladuk]

Exactly - So why when a family member wants to be a shareholder do we go up in arms on this idea??

Because there is the suspicion that the money will end up back in your hands. They will not believe this is a genuine business setup and is one just for the purposes of lowering tax liabilities. Quite rightly so looking at the reasons you are doing this...

[Alan @ BroomeAffinity]

The plan is for them to take 35K dividends each and a 10K salary which they WILL NOT gift to me. The money will be used by them

Just to be clear: You're giving your parents £90k of the income you generate and its NOT coming back to you?

[DeludedAussie]

Just to be clear: You're giving your parents £90k of the income you generate and its NOT coming back to you?

Correct - How kind I am

What I remain confused about is why this is wrong - If I was to hire a few polish people and pimp them out through my company that would no doubt be allowed. But when I set this structure up artificially then I get told off

can someone explain clearly and finally what issues there are here

[SimonMac]

I think the root of the problem is the fact you are a bit of an idiot to be honest.

You are using unrelated people to the business to artificually reduce your tax liability. That is not being efficient.. it is avoiding paying tax. Remember you will be giving your parents divis, ... who will then I expect eventually give it back to you... You as an employee will be taxed on everything as such and loads of other stuff it just isn't worth getting in to.

HMRC has been trying to tell you for bloody years that 35k divi and 5k salary is avoidance... Have you not been watching the IR35 carry on?

Harsh

[malvolio]

can someone explain clearly and finally what issues there are here

1. The connected persons rule, which is S660 for everyone bar married couples, means that thre has to be a clear commercial reason for the structure. You may be OK if (a) your parents can sell themselves as experts in what ever it is you do, (b) can win gigs based on their experience and (c) the agency allows them to send a substitute. Fail any of those and HMRC will - probably rightly - conclude there is no commercial purpose for the arrangement and ignore it as per the Ramsay principle.

2. If you are also a shareholder in your parent company you would lose any court case brought under S660. It's what it does.

3. You may be idiot enough to give away a major chunk of your income. Hector may well assume you aren't and you will have exteme difficutly persuading a court that you are.

4. Based on your username, and assuming mum and dad are back home, there are detailed reciprocal tax agreements between UK and Oz. You can't hide things that way.

5 You could get the same effect by putting your money into a pension scheme, which would be even more tax efficient. That assumes, of course, that you don't want to spend it before age 55 - which is a it of a hint about what you're trying to acheive, isn't it.

Basically, pay the bloody taxes you owe and stop making life difficult for the rest of us.

[northernladuk]

Harsh

But true.....

Or you could just liquidate the company and start again... which also has it's own risks.

[Alan @ BroomeAffinity]

Here's a wee clue:

What I remain confused about is why this is wrong - If I was to hire a few polish people and pimp them out through my company that would no doubt be allowed. But when I set this structure up artificially then I get told off

[kingcook]

I am not married and have been trying to think of ways to remove cash from the business without being a higher rate tax payer

At the moment I receive a salary of 5K and dividends of 35K (40K). The company turns over 100K a year.

You can start by taking £2488 more salary, this will give you a salary of £7488.

Tax allowance is £8105 for most people, so £8105 - £7488 leaves you with £617 difference to add to the £35K dividends = £35617.

EDIT: Forgot the dividend income limit for basic rate tax has changed this year to £34370. CBA to work out how to do that right now.

Yours,

Carol Vorderman.