Pros and cons of making spouse with own income a director

[mudskipper]

Thinking about next year when it looks as if it's going to be beneficial to make your other half a shareholder for their 5K of divvies -

Assume the relationship is "till death do us part" (I'm more likely to off him than divorce him) - what are the pros and cons of making him a director too? Does it justify him being a shareholder and does that need justification?

Someone mentioned ER - I haven't looked at this, I assume the benefit would be his CGT allowance.

Would he have to fill out a tax return?

What else?

[Eirikur]

Making him a shareholder is not the same as a director.
My wife is 40% shareholder and gets 40% of the dividends. When she was not in a job she also received a salary and monthly payments into her pension plan

[mudskipper]

No, I know it's not the same. My question is whether, given that I am likely to make him a shareholder, it would be a good idea to make him a director at the same time.

[tractor]

....

No, I know it's not the same. My question is whether, given that I am likely to make him a shareholder, it would be a good idea to make him a director at the same time.

IIUIC, the difference it makes is to facilitate use of EA for NI (3k) from next April? and for MVL.

I am sure an accountant will be along shortly to shoot me.

[The Spartan]

He would have to fill out a tax return if he receives more than 10k in dividends.

[psychocandy]

My mrs is 50% shareholder director. Cant remember why but accountant said it was better to make her director as well.

Of course, if other half already earns a shedload its pointless. In my case, she works part-time as nurse so only eared £15K so plenty of allowance to be used for divis.

One thing my accountant did advise though. Dont keep changing the company structure. If it looks like you're changing it just to screw tax then its a flag - not sure if thats right or wrong.

Basically, a company should be set up in the correct company structure for the company not just to save tax apparently. If you do at the beginning fair enough but dont change it every year.

[ContrataxLtd]

No, I know it's not the same. My question is whether, given that I am likely to make him a shareholder, it would be a good idea to make him a director at the same time.

Hi Mudskipper

You'd want to make him and officer (director or secretary) or an employee so that he'd be eligible for Entrepreneurs relief if/when the company is closed down, assuming the rules don't change and he's has the shares for at least 12 months before closing.

Downside to making him an employee is that you'd have to pay him and it would have to be at market rate for any work he does. It would also mean that you have to comply with Auto-Enrollment as you have an employee. The upside is that you may still be eligible for the employment allowance but I'm not sure how this is going to work in practice.

If you make him a director and he doesn't have a contract of employment then Auto-Enrollment shouldn't apply (you can exempt your company), yes he will have to do a tax return but would probably have to anyway given he'll be receiving dividends and the criteria for doing a tax return will have to change as a result of the budget.

HTH

Martin
Contratax Ltd

[The Spartan]

One thing my accountant did advise though. Dont keep changing the company structure. If it looks like you're changing it just to screw tax then its a flag - not sure if thats right or wrong.

Flag or not they can kiss my behind and try and prove it

[tractor]

...

Flag or not they can kiss my behind and try and prove it

I don't think HMRC are capable of operating any flagging system. They don't have the manpower to monitor it and their systems are so bad they get 5m tax codes wrong EVERY year.

I suspect they rely on random sampling for their inspections which are skewed from time to time towards specific sectors where they identify a risk. Then on every inspection they have a crib sheet and always, always go for the same things. Doing this stuff day in, day out means that they are unlikely to miss anything. Obviously, the fashion changes and their focus will be on different and often new things especially when the latest wheeze comes out (backed by a QC of course).

How many times have we seen just in these fora that CH shut down companies for reporting violations and HMRC have not even challenged the closure for lack of accounts or other administrative failings? If they had any flagging system at all, this type of thing could never happen.

[The Spartan]

I don't think HMRC are capable of operating any flagging system. They don't have the manpower to monitor it and their systems are so bad they get 5m tax codes wrong EVERY year.

I suspect they rely on random sampling for their inspections which are skewed from time to time towards specific sectors where they identify a risk. Then on every inspection they have a crib sheet and always, always go for the same things. Doing this stuff day in, day out means that they are unlikely to miss anything. Obviously, the fashion changes and their focus will be on different and often new things especially when the latest wheeze comes out (backed by a QC of course).

How many times have we seen just in these fora that CH shut down companies for reporting violations and HMRC have not even challenged the closure for lack of accounts or other administrative failings? If they had any flagging system at all, this type of thing could never happen.

I agree, I've seen this happen first hand when I worked at CH as a permie we'd often get phone calls from HMRC about outstanding liabilities even though the company/companies in question had been dissolved. Funniest thing is it takes a few months from start to finish before a company ends up as dissolved.