Non fee earner spouse as sole director

**tractor** · 30 October 2011, 10:05

..

Originally posted by webbym View Post

Hi,

I'm hoping to move into contracting and was researching an optimal tax structure.

Given that my partner doesn't work currently, was wondering if it makes it sense to have them
register a company, acting as the sole director. I can then be an employee of this
company and the only fee earner.

I think this puts complete control into hands of the non-fee earner and hence reduces
any chances of HMRC investigations, similar to Arctic systems regarding income distribution etc
as we both would like to take out low salary and high dividends each.

Would this be a feasible structure ? Any concerns with this structure ? (other than the emotional / family / trust aspect) Do I need to be appointed a director to own 50% share holding in the company ?

many thanks.

I'll do it....

"I think this puts complete control into hands of the non-fee earner and hence reduces
any chances of HMRC investigations, similar to Arctic systems regarding income distribution etc
as we both would like to take out low salary and high dividends each."

The first para indicates you are clued up.

"Would this be a feasible structure ? Any concerns with this structure ? (other than the emotional / family / trust aspect) Do I need to be appointed a director to own 50% share holding in the company ?"
The second para indicates that you are not clued up.

Which is it?

BTW, you might want to rearrange this "(other than the emotional / family / trust aspect) " into "Don't trust emotional family"

**webbym** · 30 October 2011, 10:45

yes, I'm only partly clued up about it since I've never been contracting, but got lot of friends doing it so know quite a bit about the process and structure etc.

Researching on this forum and others, it appears to be the right thing to do but I couldn't find any examples where people are doing it in this way, so I'm not sure if I'm missing something. In most cases, the fee earner is also a director and their spouse maybe appointed to manage company paperwork but I want to remove the grey area by just letting the non-fee earner have full company control.

**SueEllen** · 30 October 2011, 11:23

Originally posted by webbym View Post

Researching on this forum and others, it appears to be the right thing to do but I couldn't find any examples where people are doing it in this way, so I'm not sure if I'm missing something. In most cases, the fee earner is also a director and their spouse maybe appointed to manage company paperwork but I want to remove the grey area by just letting the non-fee earner have full company control.

Thing is you will still be acting like a director and have control of the company even if you aren't officially a director as it will be you arranging the contracts, bank account, accountant, etc. There are legal cases for example bankruptcy when the arrangement you have will be challenged as being fraudulent. Also not being a director of such as small company could ring alarm bells with businesses you deal with, as people who are disqualified from being a director often try the trick of getting their wife or mother to be the director.

**malvolio** · 30 October 2011, 12:16

Here's a suggestion. Do a google on "The Ramsay Principle".

HTH

**webbym** · 30 October 2011, 12:49

I see the implications. I've considered situations where clients might perceive this structure as
hiding something, but for my first contract, clients are fine with this arrangement. I've also indicated
that if they need, I can be appointed as a director later on. I believe, that will remain the case throughout so if a client insists, I'm happy to join as director. Also, can join as a director when
I need to change contracts at some point later.

The point about 'effective' control raises some concerns but I would have thought that not having any official control / say in running the company affairs - declaring dividends etc would be a significant testing factor.

I also read about the Ramsay principle and it can have an impact, but it can be applied to pretty much all contracting arrangements so that probably remains an ongoing grey area.

What options do we have to ensure we can do income splitting, I myself do not believe that admin work is reason enough to pay the non-fee earner same salary as the fee earner.

**malvolio** · 30 October 2011, 13:37

Originally posted by webbym View Post

I see the implications. I've considered situations where clients might perceive this structure as
hiding something, but for my first contract, clients are fine with this arrangement. I've also indicated
that if they need, I can be appointed as a director later on. I believe, that will remain the case throughout so if a client insists, I'm happy to join as director. Also, can join as a director when
I need to change contracts at some point later.

The point about 'effective' control raises some concerns but I would have thought that not having any official control / say in running the company affairs - declaring dividends etc would be a significant testing factor.

I also read about the Ramsay principle and it can have an impact, but it can be applied to pretty much all contracting arrangements so that probably remains an ongoing grey area.

What options do we have to ensure we can do income splitting, I myself do not believe that admin work is reason enough to pay the non-fee earner same salary as the fee earner.

The client's not the problem, they don't give a stuff as liong as you turn up and do the job. The taxman is the problem. But hey, if you really want all your corporate income treated as personal and taxed accordingly, then go right ahead.

Salary has to reflect work done. MPs can get away with paying thier wives and kids £35k as one day a week secretaries, we can't.

As for income splitting, the connected persons ruling means it doesn't matter a stuff between unmarried couples and post-Arctic no longer matters between husband and wife provided that they have the same class of shares and voting rights. So there is zero reason to plan around it anyway.

Has it ever occurred to you to wonder why we are mostly sole directors and either sole or co-shareholders in our companies...? Could it be theat there is a good reason for it? Or perhaps we're all too supid to have thought about doing it any other way?

Look, you know nothing and understand less. Get back to the usual guides and learn your business. Meanwhile stick to the boring, basic legal solutions until you know enough to bend the rules.

**Wanderer** · 31 October 2011, 19:21

Originally posted by webbym View Post

What options do we have to ensure we can do income splitting, I myself do not believe that admin work is reason enough to pay the non-fee earner same salary as the fee earner.

Arctic Systems did something like:

Contractor = Director, paid £7k salary, 50% shareholder
Spouse = £4k salary, 50% shareholder

It's interesting that HMRC didn't challenge the £4k salary payment in the Arctic Systems case. Make of that what you will.

For the salary, pay whatever you think is justified for the work done by your partner. Secretarial/admin/book keeping/research etc are common contributions. You may attach a premium to employing someone you know and trust to do work for you, eg, if I were employing someone, I wouldn't employ a stranger to do my company book keeping and PA work - I would be inclined to keep it in the family. If you aren't comfortable about it then pay no salary at all.

For the dividends, these are paid to the shareholders according to the percentage of the shares they hold. The shareholders don't have to have any input to the company whatsoever to justify their dividend.

You don't need to jump through hoops or create any exotic arrangement, just go with that setup, stop worrying and get on with running your business. This was found to be perfectly legal and thousands of small businesses do exactly the same thing.

Non fee earner spouse as sole director