Question about dividends

[anddrew]

Hello!

I am contracting via my limited company (50%-50% sharing it with my wife who does not work).

I pay myself and my wife (both owners) dividends once a month, constant sum of money (I also pay myself and her minimal salary, around £500 monthly).

Is this OK or there can be anything suspicious to HMRC in this kind of activity? I.e. would they think it somehow breaches the IR35 rules if one receives constant-sum dividends monthly?

Many thanks!

[northernladuk]

What does your wife actually do for that £500? Pretty much nothing I would guess so you are going to get hung out to dry if HMIT come round. You can't just pay for nothing, they will see this as tax avoidance. Doing your books and all the other stuff people try and justify this with just don't cut it. You pay a qualified accountant less than £1500 a year so how can you justify £500 a month to your wife.

The share split is contentious. Some say don't do it to avoid HMRC and also the dangers of what happens if stuff doesn't go right at home, others say do split to show some reasonable representation i.e. 70/30. Other will just say go ahead and fill your boots 50/50.

Bearing in mind you are paying her for what I assume to be next to nothing AND doing the 50/50 split you are running a fine line.

My opinion though as I think many people just take the piss with this system without even understanding it. The fact you are asking this now after you have set it up tells me you are just using it as an avoidance method, pure and simply.

I personally don't think the fixed money per month is an issue. Permies get paid monthly yes but that is irrelevant. You can take what div's when you want so I wouldn't worry about it. Saying that I pay the max profit per month I can which a) means I can put it somewhere where it will earn more than in my company bank and b) I don't have to worry about the number looking the same.

This question also gets asked a hell of a lot... Check all the other threads on it below...

http://www.google.com/search?hl=en&q...legal%2F&meta=

[Jessica@WhiteFieldTax]

At the moment your strategy is relatively low risk, although things can change.

The two risks are:

~ changes in tax rules / HMRC approach - always on the cards both re the salary and shareholdings, but its benign at the moment. 12 months time could be different.

~ matrimonial - easiest thing then is to start a new company and assign the contracts over, but its a patrimonial and company law nightmare, with attendant legal costs if it turns nasty.

[psychocandy]

As NLUK says, paying your Mrs salary for nothing is dodgy.

Giving her dividends of 50/50 is fine (although some argue its not but thats a long discussion).