Dividend Question

[IR35 Avoider]

I'm never quite sure what is meant by official minutes, and if a piece of paper saying "at the meeting at this date this happens" counts as official minutes, or whether something more formal needs to happen.

Here's an example. Obviously the name above the dotted line at the bottom is supposed to be the signature, even though it looks printed here.

[IR35 Avoider]

No she will be doing the books and other administrative stuff.

Do you think you can convince a tax commissioners hearing that you would give the same level of salary and dividends to a complete stranger, for doing the same work? If so, that argument will work.

Given that I pay my accountant a very small fraction of that amount for doing the accounts and she also acts as my company secretary for no extra charge, I think you'd find them pretty skeptical.

Another way of looking at it, is how many hours does she put in compared to you? If I divided my income with my accountant on that basis she would get roughly what I do pay her - of the order of 1% of turnover. (I'm probably putting the position a bit to strongly - if partner was getting up to about 5K as salary, I suspect there's no way they would argue with that, even if all she did was act as company secretary.)

I should stress that I am only playing devils advocate, presenting the HMRC position. With their defeat at the last stage of the test case it's quite hard to judge what the law is now. And for more than a decade prior to this test case, tens of thousands of contractors and their accountants believed there was nothing wrong with paying any amount of dividends to a partner, and there was no need to justify it in terms of their involvement in the business.

The problem is, that if HMRC do win and you are investigated, then six years worth of dividends to your partner will be treated as your income for the years in question, and taxed at the higher rate.

I should just clarify: I know S660 is only an issue with regard to dividends, salary only comes into it when assessing if the total rewards are disproportionate to involvement in the business. If they're not, then it it's only the dividend income that is in danger of being taxed as yours.

Although it's an unrelated issue, note that salary and pension contributions paid to you partner can be disallowed as an expense for corporation tax purposes, if your inspector of taxes does not believe you would have paid the same level of a remuneration to a complete stranger for doing the same work. Having said that, I think it is quite rare for this to be raised as an issue.

[VectraMan]

Here's an example. Obviously the name above the dotted line at the bottom is supposed to be the signature, even though it looks printed here.

More or less what I have, but does anything need to happen with that piece of paper beyond just keeping it?

[oraclesmith]

More or less what I have, but does anything need to happen with that piece of paper beyond just keeping it?

Nope. You need to keep it with the other company structure documents (memo of association etc).

Also, make sure your shareholder(s) actually get their tax credit voucher and file it away for their self assessment tax return.

[VectraMan]

Also, make sure your shareholder(s) actually get their tax credit voucher and file it away for their self assessment tax return.

That's a new one on me as well, will have to ask the accountant.

Is there any issue with paying dividends on the previous year's profits? Obviously you might not pay the maximum amount of dividends in a year, choosing to leave the money in the company. If you made a loss in the second year, could you still pay money as a dividend because it was profit made in the first year, or would that money now become part of the second year's account, and no dividend would be allowable?

[oraclesmith]

Re. dividend vouchers, from direct.gov.uk website :-

Declaring dividend income on your tax return
If you normally complete a tax return you fill in three boxes:

the 'dividend/distribution' - the actual amount you were paid
the 'tax credit' - as shown on the dividend voucher
the total of these two - the ‘dividend income'
You pay any extra tax owing via either Self Assessment or PAYE (Pay As You Earn), depending on how you normally pay tax.
"

http://www.direct.gov.uk/MoneyTaxAnd...453&chk=FuPP1L

There is a minimum standard for dividend vouchers which you can get from various legal and government websites.


The retained profit from previous year would have attracted corporation tax, which you would have already paid (or be due to pay). If you make a loss in the current year, you can (amongst other things) set it against previous year profits and reclaim corporation tax. However, I don't know whether this would then allow you to issue further dividends on the remaining bank balance. You should have a chat with your accountant.