Reply to: Company Formation

[malvolio]

Yeah, and you believe that.

I certainly don't. It's all political spin.

Running a one man IT service company is a piece of p1ss, and IMHO anyone who says otherwise is lying. I accept that turning it into a 2 man one is difficult and that many people start out with this intention, but few achieve it. But having not achieved it, do they shut down their company and do something else? Usually not, they just continue as a one man band.

tim

Well fine, but I was talking to Geoff over a coffee at the time, and I didn't get the impression he was telling porkies. Go study the case and meet the people before you start casting aspersions.

[tim123]

Geoff is quite adamant that had Diana not provided support and put up some considerable time, effort and work, there would not have been an Arctic Systems in the first place, and he is equally adamant that had it all gone tits up in the first year or so, they would both have been the losers, so why should she NOT be entitled to some reward - and if she isn't then just what the f*** is marriage all about anyway?

Yeah, and you believe that.

I certainly don't. It's all political spin.

Running a one man IT service company is a piece of p1ss, and IMHO anyone who says otherwise is lying. I accept that turning it into a 2 man one is difficult and that many people start out with this intention, but few achieve it. But having not achieved it, do they shut down their company and do something else? Usually not, they just continue as a one man band.

tim

[oraclesmith]

Well I haven't noticed any tax benefits of being married !!

Although, to be fair there are a few tax rules which only apply to spouses - such as the ability for a spouse to inherit an estate tax free. And it is much better to have seperate tax allowances.

[malvolio]

There aren't any. Separate Taxation means just that. NL killed off the married man's allowance, which was the only one and was predicated on the basis that a man had to support his non-working wife, years ago. There is no fiscal advantage in being married - and given the sheer stupidity of Gordon's re-interpretation of the welfare state, you're actually better off being single.

So where have you been hiding since 1997 then?

[Cowboy Bob]

That's the whole f***ing point, you prat. Because Geoff and Diana are married, her income is being treated as his for tax purposes in flat contravention of the principle of separate taxation brought in by Lawson(?) in the mid 80s. You can't have it both ways - under any other circumstances, the case would never have arisen.

Not it's not the f***ing point. The reason I said it was OT is because I'm talking about personal tax. You know all those tax breaks you get just for being married.

[malvolio]

The fact that 2 people are married should in no way affect their tax status IMO. Getting OT here, but it's a pet peeve of mine.

That's the whole f***ing point, you prat. Because Geoff and Diana are married, her income is being treated as his for tax purposes in flat contravention of the principle of separate taxation brought in by Lawson(?) in the mid 80s. You can't have it both ways - under any other circumstances, the case would never have arisen.

[Cowboy Bob]

and if she isn't then just what the f*** is marriage all about anyway?

The fact that 2 people are married should in no way affect their tax status IMO. Getting OT here, but it's a pet peeve of mine.

[malvolio]

Well I'm not inclined to argue the point since I doubt we'll get anywhere. Except for one thing:

All parties accept that she has received a fair wage for the work that she did. It is therefore only her shareholding that (it is argued) entitles her to a further income distribution. Is it common sense that a share bought for 1 pound should receive a distribution of 20K per annum? Would a 100% productive director, owning only half of a company with 40K available to distribute, recommend distribution if the person owning the other 50% was someone other than their spouse/partner?

Geoff is quite adamant that had Diana not provided support and put up some considerable time, effort and work, there would not have been an Arctic Systems in the first place, and he is equally adamant that had it all gone tits up in the first year or so, they would both have been the losers, so why should she NOT be entitled to some reward - and if she isn't then just what the f*** is marriage all about anyway?

[tim123]

You are kidding, of course. Quite apart from the minor details:

a) that Diana Jones did real work for Arctic over the years and paid for her shares out of her own pocket when the company was set up,
.

All parties accept that she has received a fair wage for the work that she did. It is therefore only her shareholding that (it is argued) entitles her to a further income distribution. Is it common sense that a share bought for 1 pound should receive a distribution of 20K per annum? Would a 100% productive director, owning only half of a company with 40K available to distribute, recommend distribution if the person owning the other 50% was someone other than their spouse/partner?

b) that S660a is aimed at shares that are substantially a right to income, which ordinary shares are not, .

This is a legal arguement it is not a common sense one.

c) that it is the clear will of Parliament when independent taxation of spouses was set up that married couples could and should share their personal allowances to minimise their tax bill,
.

This is a (complex) legal arguement, it is not a common sense one

d) that the law only appllies to marries couples and not long term partners, siblings or any other pairing and is thus totally discriminatory, and
.

This is true, but a self employed person cannot distribute (without incurring a tax charge) some of his income to a non productive partner, so ISTM common sense says that a company director shouldn't be able to either.

e) the High Court judges who handed down the last ruling were unanimously adamant that Hector was wrong and Arctic was right....
.

This is a legal argument, it is not a common sense one.

You frequently talk bollocks, young Tim, this time you have excelled yourself. The case is being prolonged for political reasons, not legal ones. The potential take is too high for Gordon to ignore, whether it is moral or justifiable.

All I said was that there is not a common sense argument that Mr Jones ought to be able to distribute so much of his 'earned' income to his spouse in this way. All she has done to earn it is stayed at home and enabled him to go out to work. ISTM that this is no different to the spouse of a Self employed or employed person, yet these people are barred (by statute) from income sharing in the way Mr Jones has.

The reason Mr Jones can income share with his wife, is simply because the law (appears to) allow him to do so. But common sense doesn't say that he ought be able to do so.

All IMHO

tim

[malvolio]

Answer: Probably not, since there are only half a dozen cases in progress that are affected . But any change in taxation rules can be backdated to Dec 2004, even if it makes what is currently totally legal into something illegal (one reason why it's not really worth bailing out of your composite company arrangements - it's too late)

Given that attitude, it is also not improbable to assume that any new tax laws drawn up by Gordon and fiends (sic) will be made retrospective: certainly our pathetic excuse of a Parliament wouldn't object.

[oraclesmith]

Question : would it be feasible for the Revenue, if Artic won, to have to retrospectively 'unsettle' existing settlements ?

[Cowboy Bob]

I agree with Tim. It's obviously a blatent tax dodge. S660a should be upheld and sharing divis for the sole purpose of reducing the tax burden of the main earner should be made illegal.

However, at the time of the Arctic case it was legal and it is unfair to be chasing the Jones's for the back tax.

[triboix]

I disagree (and so do many professionals). The revenue's view is the common sense one. That is why they have got as far as they have.

But common sense is irrelevent in law, that is why the Jones are winning at the moment and ought to win in the end.

tim

I agree that's common sense, but why did the government encourage family businesses in the first place? To do it properly, HMRC should do 2 things, IMHO:
- have a proper law being passed to handle such cases
- do not claim taxes for things that happened before such a specific law is enforced.

The only reason HMRC is trying to raise the dead (with the S660A thing) is to have the right to backdate the tax liabilities. It will allow it to raise billiions in tax, but in an extremely unfair way, IMO. This is also common sense.

To allow and even encourage people to structure their business in some way, just to challenge this very structure later on to try to raise more tax is utterly unfair. Anybody but a goverment body will go to jail for that!

[malvolio]

I disagree (and so do many professionals). The revenue's view is the common sense one. That is why they have got as far as they have.

You are kidding, of course. Quite apart from the minor details:

a) that Diana Jones did real work for Arctic over the years and paid for her shares out of her own pocket when the company was set up,

b) that S660a is aimed at shares that are substantially a right to income, which ordinary shares are not,

c) that it is the clear will of Parliament when independent taxation of spouses was set up that married couples could and should share their personal allowances to minimise their tax bill,

d) that the law only appllies to marries couples and not long term partners, siblings or any other pairing and is thus totally discriminatory, and

e) the High Court judges who handed down the last ruling were unanimously adamant that Hector was wrong and Arctic was right....

You frequently talk bollocks, young Tim, this time you have excelled yourself. The case is being prolonged for political reasons, not legal ones. The potential take is too high for Gordon to ignore, whether it is moral or justifiable.

[triboix]

But the market value is based on past performance. For example if my £1 shares pay a divi of £10k each for several years, then on the open market they would be worth probably around £100k apiece or more to an independent investor, providing the trading circumstances of the company haven't changed - ie. not going under, same income streams etc. It would be difficult to argue this one, methinks.

Well, this argument makes sense!

Transfer yes, but what I've been considering is issuing myself more shares as a Director. ie. issuing the remaining 98 shares retained by the company I control. These would probably be regarded as 'by reason of employment' and reportable on Form 42.

If you want to issue new shares, I guess indeed there are not too much tax saving tricks!