Optimal Split for Spouse shareholding

[sher]

Am sorry to say this again but you seriously need to get an accountant.
Get an accountant and speak to them. There is tons you are probably missing and they will be able to save you more than you know currently.

Much appreciated. I have had chat with accountants on this and I wanted to bounce this idea with others out here to get a feel of boundaries (that shouldn't be pushed). It's always useful to hear different opinions before trusting a newly appointed accountant!

I understand that there's near unanimity that it's always better to play safe than to take chances. Thanks a ton to all of you .

[Alan @ BroomeAffinity]

Somebody mentioned dividend waivers. They do work but the paperwork is essential and remember that (as I understand it) there has to be profits available for 100% of the pre-waived dividends. So say there was a 50:50 split and the available profits were £50k, you'd only be able to distribute £25k.

[Jessica@WhiteFieldTax]

I thought waivers were a bit of a no-no, as they tend to be like a red flag to a bull* and open to challenge from HMRC, particularly when talking about income splitting between fee-earning director and spouse?

*Edit: So I've heard, I should say....

They are OK so long as (a) you get paperwork and detail right and (b) you don't do them every year, an occasional one fine.

Somebody mentioned dividend waivers. They do work but the paperwork is essential and remember that (as I understand it) there has to be profits available for 100% of the pre-waived dividends. So say there was a 50:50 split and the available profits were £50k, you'd only be able to distribute £25k.

Yep, thats a start. Need board minutes and a paper trail before the dividend is declared....

[lithium147]

Dividend Waivers; Sound like I am missing out, time to speak to the accountant.

[northernladuk]

Dividend Waivers; Sound like I am missing out, time to speak to the accountant.

More expense fudging to be had hey?

I find it odd that two people say dividend waivers are ok? Advice given previously on this thread is to stay well away from them. Yes they can be done with paperwork but it wasn't advisable for contractors to do it as it would be a flag to HMRC for a little looksie. My own accountant also advised this should not be done yet we have two people on the same page saying do it???

[eek]

More expense fudging to be had hey?

I find it odd that two people say dividend waivers are ok? Advice given previously on this thread is to stay well away from them. Yes they can be done with paperwork but it wasn't advisable for contractors to do it as it would be a flag to HMRC for a little looksie. My own accountant also advised this should not be done yet we have two people on the same page saying do it???

All accountants have a different view to risk. Your idea of risk and my idea of risk are identical (don't try and be clever) theirs is somewhat different.

[northernladuk]

All accountants have a different view to risk. Your idea of risk and my idea of risk are identical (don't try and be clever) theirs is somewhat different.

Indeed. I would be interested know which ones quote the law and which are aware of the law but will tailor their advice to suit the odd situation we run though.

[Jessica@WhiteFieldTax]

All accountants have a different view to risk. Your idea of risk and my idea of risk are identical (don't try and be clever) theirs is somewhat different.

Horses for courses. I'm quite risk adverse, although ultimately it's clients call not mine.

To put things in context, I've applied divi waivers to 0.07% of my client base over the last 20 years.

But I regard them as low risk when done properly and used in the right circumstances. They are a tool, but not to be used recklessly.

[lithium147]

Horses for courses. I'm quite risk adverse, although ultimately it's clients call not mine.

To put things in context, I've applied divi waivers to 0.07% of my client base over the last 20 years.

But I regard them as low risk when done properly and used in the right circumstances. They are a tool, but not to be used recklessly.

So what are the "right circumstances"?

Found this: Dividend waivers: Get the details right | AccountingWEB
Is that a good guide?

This point seems to be key:

HMRC would prefer to see a commercial reason for the waiver (again see Buck v HMRC). Therefore, best to state in the deed that the waiver has been made to allow the company to retain funds for a specific purpose.

So whats a good commercial reason?

[captainham]

Scheming again? You really are a piece of work.

Found this: Dividend waivers: Get the details right | AccountingWEB
Is that a good guide?

What do you think?! Did you even read it?

Here's a quote from it:

"In practice HMRC are only likely to take the above settlement point where the waiver is considered to create a tax advantage."

Bearing in mind you are just trying to push the boundaries of what you can get away with tax-wise, then this no doubt rules you out.

This point seems to be key:

HMRC would prefer to see a commercial reason for the waiver (again see Buck v HMRC). Therefore, best to state in the deed that the waiver has been made to allow the company to retain funds for a specific purpose.

The case you refer to is over 10 years old. IANAA so a lot of it doesn't even make much sense to me, but the very first hit on Google for this case provides these comments from an article which is all I need to know:

"Mr and Mrs P do not seem to have been well advised (why do people continue to put these daft share structures in place? – Young v Pearce etc are cases which date back to the mid-nineties).

If you read the judgement you will also note that their accountant did not help. He seems to have backdated documents and not being legally versed meant that he missed a trick of two. He was lucky to have such a helpful judge take up the slack for him, but I wonder if the case would have gone to court if the couple had well, slightly more competent representation from the start?"

So whats a good commercial reason?

As stated in the link you provided:

"Therefore, best to state in the deed that the waiver has been made to allow the company to retain funds for a specific purpose."

I don't think "Lithium147 wants to maximise their yearly personal tax allowances" is an acceptable commercial reason.


But of course this is not the answer you want to hear, so as usual you go and do whatever it is you want to do.