Reply to: Change of directors

[ASB]

Please disregard what I said previously about CGT/IHT because ASB says, transfers between spouses are exempt. It *might* be worth making a note of the value of the shares (if any) in case there are any implications if you dispose of them in future, but its likely not to be an issue.

Which leads me onto a couple of other related, but quite possibly irrelevant points.

- The transfer takes places at the donors acquisition cost, thus the "ongoing" gain in the asset is maintained as the time of the transfer. So, if the shares wer subscribed for £100 this is thier value on the recipient.
- It is feasible that HMIT could attack using Ramsay. This is only really likely if the transfer occurs shortly before disposal to a 3rd party. e.g. some property is owned which has a current gain of 20k. This is then transferred in part to a spouse and sold. HMIT may want to ignore the sale and assess the full gain of 20k on the donor (thus giving approx 10k subject to CGT) rather than allowing 10k each.

[TheCyclingProgrammer]

One follow up question is this, if I transfer 100% of the shares to me at the same time I appoint myself as a director, will there be any tax implications? Given the company is not profitable, there's should be no CGT and don't think IHT is an issue.

Your wife is also the 100% shareholder?

There shouldn't be any issues with her transferring her shares to you. Please disregard what I said previously about CGT/IHT because ASB says, transfers between spouses are exempt. It *might* be worth making a note of the value of the shares (if any) in case there are any implications if you dispose of them in future, but its likely not to be an issue.

Still speak to an accountant to confirm this. You just need to fill out a share transfer form, update your company register and update the list of shareholders on your next annual return.

[ASB]

One follow up question is this, if I transfer 100% of the shares to me at the same time I appoint myself as a director, will there be any tax implications?

Stuff all really because you are married. Transfers between spouses are exempt. Obviously you still potentially make a gain on any ultimate disposal you may make down the line.

Don't forget the shareholders register needs updating and the relevant form filing.

[TheFaQQer]

Jesus wept... Where on earth does it even suggest that the directors have an impact or IR35.

It doesn't - but since some agencies say that you must be a director before they'll give you a contract, it might be because of that.

[mikef]

Hi TheCyclingProgrammer,

Your answer makes a lot of sense and helps greatly. Thank you so much.
I'm in the process of appointing an accountant, but in the meantime, as a "nervous newbie" I am trying to learn about my current situation from everyone as much as I can. And I must say, a few contractor friends advised me to make sure I'm always in the position to double check (or at least not blindly follow) what the accountant is recommending always.

So based on what you said, I think I will go with the simple option, appoint myself as an additional director and keep my wife as a director too. As for the shares, I will probably go for 100% of shares and she will end up with 0%, as I don't want further complications - and her permanent salary doesn't make this arrangement beneficial anyway.
One follow up question is this, if I transfer 100% of the shares to me at the same time I appoint myself as a director, will there be any tax implications? Given the company is not profitable, there's should be no CGT and don't think IHT is an issue.
I suspect it should be fine to do.

Thanks,
Mike

[northernladuk]

Jesus wept... Where on earth does it even suggest that the directors have an impact or IR35. Where do people get this stuff from and why don't they do anything to correct it? They are quite happy to bugger around blindly with their company structure buy not read and understand some well explained documentation? And the directors vs shareholders thing. Quite unbelievable.

[TheCyclingProgrammer]

I don't want IR35 complications, which is why I would think having her as an additional director and/or shareholder might trigger an HRMC investigation, given that going forward she won't be doing something meaningful for/on the company. It might seen as a way of extract funds out of the company without paying tax. I know having your wife as a secretary was a big punt a while ago, but don't think that works very well nowadays. I might be wrong.
She also has a permanent job.

Your wife doesn't have to do anything meaningful for the company; she can still be a director or company secretary. If you pay her a salary for this role, then you do need to justify that the salary is "wholly and exclusively" for business purposes (normally taken to mean, she actually does do some work in return for her salary). If you don't pay her a salary she can still be an unpaid company officer.

If you're thinking about making her a shareholder (it seems like your conflating this with being a company officer), you can do this to so long as she is given ordinary shares with full voting rights and right to capital (see Arctic systems case). But engage an accountant to ensure this is done correctly (if you transfer some of your shares to her there should be CGT or IHT implications). If you do this it would be beneficial if she remains company director to ensure she is entitled to entrepreneurs relief if you ever close the company down and take a capital distribution.

Of course, if she already makes use of all or most of her basic rate tax band in her main job this probably wouldn't be very beneficial so keep it simple. Make yourself a director, let her stay as director or resign if she wishes and leave it at that - don't bother messing around with shares. But she definitely doesn't have to resign if she doesn't want to.

[TheCyclingProgrammer]

Post-tax? I thought paying back loans (director loans included) can be done with pre-tax funds?

There's no personal tax implications of repaying a director's loan but a company needs to be able to pay its liabilities and I'd suggest you'd want to prioritise paying HMRC any VAT or Corporation Tax you owe it before it re-pays any loans. Loan repayments are not a tax deductible expense for the company (although any interest charged might be). They come out of post-tax reserves.

Simple example: if you have a net profit of £10k before tax, you would have a £2k CT bill and would have £8k remaining from which you could re-pay the loan. You could re-pay the loan anyway but you'd still have a £2k tax bill.

[SueEllen]

I don't want IR35 complications, which is why I would think having her as an additional director and/or shareholder might trigger an HRMC investigation, given that going forward she won't be doing something meaningful for/on the company. It might seen as a way of extract funds out of the company without paying tax. I know having your wife as a secretary was a big punt a while ago, but don't think that works very well nowadays. I might be wrong.
She also has a permanent job.

Having 2 directors has absolutely nothing to do with IR35.

You are also confusing the role of directors and shareholders.

She can be a director without being a shareholder and she also doesn't have to be a signatory to any accounts. Having a additional director can have it's advantages especially if something happens to you.

It's actually your wife who may not want to be the director of your company because if you screw things up she can be liable.

[mikef]

In this case, your wife's loan is in credit so your company can simply repay her as and when it has available post-tax funds to do so.

Post-tax? I thought paying back loans (director loans included) can be done with pre-tax funds?
In this case, the company is not making a profit, so no tax to pay, but as soon as I start contracting, it'll make a profit - after paying back the loans (money my wife and I put into the company so far).

[mikef]

I don't want IR35 complications, which is why I would think having her as an additional director and/or shareholder might trigger an HRMC investigation, given that going forward she won't be doing something meaningful for/on the company. It might seen as a way of extract funds out of the company without paying tax. I know having your wife as a secretary was a big punt a while ago, but don't think that works very well nowadays. I might be wrong.
She also has a permanent job.

[SueEllen]

Why do you want her to resign as a director?

He thinks it would be easier to have a sole director for some reason.

However as they are married they can have two directors, and one or more shareholders.

[TheFaQQer]

Why do you want her to resign as a director?

[northernladuk]

Why don't you have an accountant?

[TheCyclingProgrammer]

A "directors loan" is actually just a way of describing a "loan to participator" where the participator happens to be a company director. Loans can be made to participators, which can include shareholders, and also associates of participators, which includes relatives or partners of a participator. They are all treated the same.

Likewise, anybody can loan your company money and they will just be a creditor.

Which means, you can become a director and your wife can resign and her loan account will remain active - it just won't be a "directors loan" anymore. The usual rules regarding BIK limits/interest rates/s455 tax will still apply if her loan account becomes overdrawn.

In this case, your wife's loan is in credit so your company can simply repay her as and when it has available post-tax funds to do so.