Can I pay or transfer dividends to my spouse if he doesn't own shares?

[jap200]

Apologies for the ignorance of my question, but I can't find a reliable answer to this.

I am the director and sole shareholder in my Ltd company and do all of the contracting work. My husband was earning above the higher rate tax threshold (in an entirely different job) when I set it up, so there was no point in setting him up as a shareholder. He was made redundant last year and is now earning around 20K as a trainee teacher. I am now in my second financial year, with a net profit of around £88K last year and am anticipating similar figures this year.

My accountant has suggested that my husband does not need to be a shareholder to transfer some of my dividends to him, thus reducing our overall tax burden. I thought that he had to be a shareholder to pay him dividends, so am now rather confused.

His income is likely to gradually increase once he completes his teacher training in July, so it may not be beneficial in the long run to transfer shares to him.

I would be grateful if someone clarify the situation for me before I go back to my accountant.

[Craig@Clarity]

He would need to be a shareholder in order to receive dividends from your company.

As general advice goes, you'll need to do some planning ahead as to how much you think he is going to earn once he finishes his training in order to establish the share ratio (if you decide to gift him some shares). Better to get the ratio correct from the start rather than changing the shareholding as and when you feel like. Radar and all that!

[captainham]

My accountant has suggested that my husband does not need to be a shareholder to transfer some of my dividends to him, thus reducing our overall tax burden. I thought that he had to be a shareholder to pay him dividends, so am now rather confused.

Without being rude, you need a new accountant. That's a shocking statement from a so-called professional.

[northernladuk]

Setting up a system to artificially alter your tax is also avoidance and carries some level of risk.

I would a) get rid of that bloody accountant for a start and b) read up more on giving partners dividends. Some accoutants say no problems, go 50/50, some say show caution and got for a split favouring the earner, say 60/40 and others say don't do it at all and don't split your business between the two of you as it will get messy when you fall out..

Also remember you MUST pay him the percentage split. You cannot decide not to pay him one month and dividend waivers are a no no. You also cannot be seen to be changing the percentage again in the near future as this will raise a red flag to HMRC.

Do a lot more research in to it before you go forward. This has been discussed many many times here already. If you look at the thread below you will find how to search the forums. Use this method to read other threads discussing this.

http://forums.contractoruk.com/welco...uk-forums.html

[jmo21]

Without being rude, you need a new accountant. That's a shocking statement from a so-called professional.

I find it hard to believe. More likely the OP has picked the accountant up wrong with that one.

[captainham]

I find it hard to believe. More likely the OP has picked the accountant up wrong with that one.

I do hope so!!!

[jap200]

"Without being rude, you need a new accountant. That's a shocking statement from a so-called professional."

As others have said it is probably my misunderstanding or misinterpretation - which is why I was asking here about it before I go back to him!

Is there a difference, in terms of tax, between paying a dividend to a shareholder and transfering some dividend paid to me to my husband?

[Pondlife]

Is there a difference, in terms of tax, between paying a dividend to a shareholder and transfering some dividend paid to me to my husband?

In the former, the shareholder would pay any tax owed after they received the dividend.

In the latter you would pay the tax owed on the total amount and then give that money to someone else which may or may not have additional tax implications for them but probably ok if married.

There is little point to doing the 2nd for tax reasons.

[northernladuk]

As others have said it is probably my misunderstanding or misinterpretation - which is why I was asking here about it before I go back to him!

Is there a difference, in terms of tax, between paying a dividend to a shareholder and transfering some dividend paid to me to my husband?

If the dividend has been declared properly and all that dividend money declared hits your personal account you can then move it where you want as it becomes your money but has sod all to do with tax at that point so guess that isn't what you mean.

If you are thinking of declaring the dividend to you and then paying it from your business account to your husband.. why would you want to do that?

You can only pay dividends to shareholders... what you do with it once it hits your bank is up to you, it's your money from there on.

As pointed out, if you do not follow the dividend process properly it becomes an illegal dividend and will be fully taxed as PAYE (I think).

If you are going to persue this dividends to your husband thing you are going to have to learn a lot more about it quickly before you do.

[jap200]

Thank you all for your advice.

We are all in agreement that I need to learn more about dividend payments before doing anything - which is exactly the path I am following.

It does seem clear that I have misunderstood my accountant on this matter so I will be going back for further clarification and advice.