Getting money out of Ltd co I'm leaving

[TheCyclingProgrammer]

If you take it out as a dividend, then you would need to pay your partner the same dividend. Even if they waive their right to the dividend, you would still need to have reserves which would allow that dividend to be paid out, so that wouldn't help at all - you'd need £160k and still only take £80k yourself.

I'm curious and wonder if any of our resident accountants can answer this...assuming settlements legislation isn't applicable here (which it shouldn't be as we're talking about a normal waiver between two unrelated business partners[1]), is there still a requirement that there be sufficient profit to declare a total dividend even when part of it is waived? I know HMRC used that as a factor in their recent settlements case, but is it also a requirement for a dividend generally?

[1] http://www.hmrc.gov.uk/manuals/tsemmanual/tsem4220.htm (final paragraph confirms this)

[TheFaQQer]

A dividend waiver is a deed, which needs to be witnessed. I'm going to stick my neck out and suggest that this hasn't been done correctly over the past n years of taking money from the company.

[TheFaQQer]

I'm curious and wonder if any of our resident accountants can answer this...assuming settlements legislation isn't applicable here (which it shouldn't be as we're talking about a normal waiver between two unrelated business partners[1]), is there still a requirement that there be sufficient profit to declare a total dividend even when part of it is waived? I know HMRC used that as a factor in their recent settlements case, but is it also a requirement for a dividend generally?

[1] TSEM4220 - Settlements legislation: about dividend waivers (final paragraph confirms this)

TSEM4225 has some interesting points which seem to contradict the previous section:

You should look out for the following factors, which would indicate that the settlements legislation is likely to apply.

• The level of retained profits, including the retained profits of subsidiary companies, is insufficient to allow the same rate of dividend to be paid on all issued share capital.
• Although there are sufficient retained profits to pay the same rate of dividend per share for the year in question, there has been a succession of waivers over several years where the total dividends payable in the absence of the waivers exceed accumulated realised profits.
• There is any other evidence, which suggests that the same rate would not have been paid on all the issued shares in the absence of the waiver.
• The non-waiving shareholders are persons whom the waiving shareholder can reasonably be regarded as wishing to benefit by the waiver.
• The non-waiving shareholder would pay less tax on the dividend than the waiving shareholder.

Where you have a case showing any of the above factors, submit it to HMRC Trusts & Estates Technical Edinburgh for advice.

[achillea]

Accountant is on holiday this week so I can't talk to him about this potentially fundamental error (I'm livid..).

Does it help that we different classes of shares? I have one 'A' share and the other director has one 'B' share. If I remember rightly it was done this way so that we could have uneven dividend payments.

[TheCyclingProgrammer]

TSEM4225 has some interesting points which seem to contradict the previous section:

I wouldn't go as far as saying it contradicts it, you just have to take it all as a whole. All of those points are certainly things that would draw you to HMRCs attention and give them cause to look further - they are all strong indicators that there may have been a settlement, but not necessarily that the settlement is taxable on the settlor.

They are unlikely to pursue it unless the people in question are spouses or there is a very obvious arrangement for funds to be diverted back to the waiving partner (i.e. it is nothing more than an artificial tax planning arrangement which doesn't seem to be the case here) and TSEM4220 does seem to back that up. They are also unlikely to look into it if there is no actual tax advantage (i.e. the same level of tax would have been paid whoever received the dividends).

[TheCyclingProgrammer]

Does it help that we different classes of shares? I have one 'A' share and the other director has one 'B' share. If I remember rightly it was done this way so that we could have uneven dividend payments.

Yes, that can make a big difference. See what your accountant says.

[Jessica@WhiteFieldTax]

I'm curious and wonder if any of our resident accountants can answer this...assuming settlements legislation isn't applicable here (which it shouldn't be as we're talking about a normal waiver between two unrelated business partners[1]), is there still a requirement that there be sufficient profit to declare a total dividend even when part of it is waived? I know HMRC used that as a factor in their recent settlements case, but is it also a requirement for a dividend generally?

Did you mean "but is it also a requirement for a dividend waiver generally?"

If not, then sorry, I've misunderstood the question

If yes, then yes it is a desirable requirement (i.e. HMRC don't like it not being there) on all waivers

[Jessica@WhiteFieldTax]

Does it help that we different classes of shares? I have one 'A' share and the other director has one 'B' share. If I remember rightly it was done this way so that we could have uneven dividend payments.

Yes, that can make a big difference. See what your accountant says.

Histrionically, yes, that would make life easier as the different classes have differing rights.

However I was reading an article earlier this week - sorry I can't lay my hand on it again quickly - suggesting that HMRC may now be looking though A / B splits for differential extraction. See example 13 - TSEM4225 - Settlements legislation: dividend waiver: when settlements legislation may apply

Article I read - useful reading http://www.peterrayney.co.uk/pdfs/from-me-to-you.pdf

[TheCyclingProgrammer]

However I was reading an article earlier this week - sorry I can't lay my hand on it again quickly - suggesting that HMRC may now be looking though A / B splits for differential extraction. See example 13 - TSEM4225 - Settlements legislation: dividend waiver: when settlements legislation may apply

There would still need to be an element of retained interest from whoever waives the dividend though wouldn't there? That's fairly clear cut if the waiver is between spouses/civil partners but I can't see how that would normally apply to normal business partners.

Have HMRC ever seeked to apply the settlements legislation to waivers or alphabet shares between non-spouses?

[TheCyclingProgrammer]

Did you mean "but is it also a requirement for a dividend waiver generally?"

If not, then sorry, I've misunderstood the question

If yes, then yes it is a desirable requirement (i.e. HMRC don't like it not being there) on all waivers

Yes, I meant generally, regardless of settlement legislation issues. In other words, even if the settlements legislation didn't exist or clearly wasn't applicable, could a dividend still be challenged as being unlawful if there wasn't enough profit to meet the waived dividend as well. What would be the consequences of this if challenged?