Reply to: Spouses On The Payroll

[WordIsBond]

I wonder if some of the posters on here like to get their kicks by scaring newbies with paranoid nonsense like this.

LOL. Yeah, I spend all my time dreaming up ways to scare newbies, doesn't everyone?

Did I say if you have clear paperwork it is technically ok? Yeah. Will it make HMRC suspicious? Yeah. I have a built-in radar for a few contributors on here that when I see their name makes me take extra notice of what they say, and you are one of them, but I don't think this was your finest intervention.

And your "owed a supplier money" analogy is very shaky.

First, I wouldn't pay a lump sum unless I got a statement showing it, so that I could give a reference to the statement in the payment. Otherwise, I'd want each invoice to be referred in the payment, to make sure it gets credited properly to my account. I DON'T want to unnecessarily trust the competence of their bookkeeping and then have hassles getting it sorted.

But second, a dividend is not "owed" to a supplier. Salary/stipend are paid, owed, to suppliers of labour. But dividends are paid to owners of the company. And the only reason we get favourable tax treatment is because those are very different things. It is a coincidence of many of our companies that the suppliers of labour are also the shareholders, but our legal and tax status keeps them sharply distinct. And it is far cleaner and also better for our mindset to keep those distinctions in our practices.

Finally, a better analogy. A week or two ago someone was asking about paying business expenses on his personal credit card and having his business pay the card, then reimbursing the business with personal funds for any personal items. The answer there was very similar to this -- yes, you can do that if your record-keeping is perfect, but it's messy, it isn't normal business practice for businesses to pay personal credit cards, and it would be far cleaner, more business-like, and less suspicious-looking to have your company reimburse you for business expenses, and pay the credit card from your personal account.

I'd say this question is very comparable to that one. Yeah, you can do it if you are very careful about paperwork, but it is messy and not good business practice.

[Pondlife]

Salary can easy be done as monthly standing order(s).

Expenses are done as needed normally monthly as obviously they vary.

Dividends done less frequently.

Exactly.

Keep it simple.

[SueEllen]

Salary can easy be done as monthly standing order(s).

Expenses are done as needed normally monthly as obviously they vary.

Dividends done less frequently.

[No2politics]

I personally keep the payments of salary, expenses and dividends all separate. I find it actually easier to do this! Good practice as well and agree with WordisBond

[Alan @ BroomeAffinity]

I agree it's good practice to have separate payments but providing the paperwork is in place there is unlikely to be a problem with a single payment. I was privy to an enquiry once where one payment was made each month to cover contractor's salary, his divi, his expenses and his wife's divi. Inspector queried it, was provided with paperwork (payslip, divi vouchers, expenses claim), and was satisfied. Extreme case and I wouldn't recommend it but sometimes we've a tendency to be over cautious. That said, I wouldn't recommend it and it's not exactly difficult to set up three payments instead of one.

[TheCyclingProgrammer]

Yes, that's the reasoning.

Technically, if you have the dividend voucher and you file RTI, so you have clear paperwork, you can probably get away with this. But if you are ever investigated, when they see what you are doing you are going to have a lot of explaining to do.

What evidence do you have to back up this spurious claim?

It would be a very lax HMRC inspector who simply looked at a single transfer of money and seeked to tax it as one thing without asking for any further paperwork to show what it was and if it even got as far as a tribunal and all the relevant paperwork was presented I would imagine the judge would be most unimpressed that HMRC had not done their due diligence.

In reality, an inspection would probably go something like this:

HMRC: I see a transfer for £xxx from company bank account to your personal account here. What was that for?
Director: That was to cover a salary payment and dividend that was declared around the same time. I made a single payment as it was more convenient.
HMRC: Do you have the paperwork to back this up?
Director: Of course, here's the payslip and the RTI submission receipt showing the details of the salary and here's the dividend voucher and minutes of the board meeting where the dividend was declared.
HMRC: Thank you, that will be all.

I wonder if some of the posters on here like to get their kicks by scaring newbies with paranoid nonsense like this.

[TheCyclingProgrammer]

I'm not really buying this argument that HMRC could argue a single payment is in fact for one thing when all the paper evidence clearly shows it as another. Typical paranoia without any evidence to back it up, as is common on this forum.

For instance, there is absolutely no reason why your salary (once you've filed the RTI submission) and dividend (having drawn up all the correct paperwork) couldn't both be credited to the directors loan account, to be withdrawn at some point in the future. Then, when the time comes you pay yourself £xxx (whatever the balance owed to you on the DLA is). Does that make a difference? Of course not.

Its the paper trail the matters, not when and how you move the money and frankly the idea that keeping the payments separate is "running a proper business" is rubbish. Its far more important to make sure your dealing with your PAYE correctly on any salary payments, drawing up the correct dividend paperwork (and ensuring there is sufficient profit at the time) and keeping records for any expenses. THIS is running your business properly.

If you owed a supplier money across multiple bills, would you send them separate payments for each bill or one lump sum? Its the same thing.

[WordIsBond]

....but also, purely for the sake of argument ....why shouldn't a small (i.e. 1 man band) business take advantage of the fact they're a small business, that doesn't have teams HR/accountants/finance people, and just do 1 transfer? In fact, why waste time splitting things out, changing the description of the transfer?
Again, if you're a one man band, why shouldn't you be able to have some flexibility on when you make the transfers? What's inherently wrong with that? e.g. I'm away on business, or holiday, I'm a one man band, I'll do the transfer for PAYE when I get back.

Purely for the sake of argument.

If you want HMRC to tax the two amounts the same way, by all means, do them together. But don't be surprised if they say that if they are done together, your "business" is a fiction, and then they'll decide the most painful way to tax your income. And if you end up in court fighting them, you have to convince the court that it actually was a business.

If you want them to tax the two amounts differently, one a payment to someone who works the business, and one a payment to a shareholder who owns shares, then treat them differently. The fact that the shareholder happens to be the same guy as the person who works in the business is irrelevant to taxation, and it should be irrelevant to business practices.

If you want to have a business, run it like a business. If you can't be bothered to learn what that means and do it, your tax investigation, when it comes, is likely to turn ugly. I'm NOT going to say YANCOTBAC, but you need to ask yourself if you are, if you are seriously asking the question.

[FrontEnder]

Thanks, understood. I'll talk to accountant about it and will change the way I'm doing it.

....but also, purely for the sake of argument ....why shouldn't a small (i.e. 1 man band) business take advantage of the fact they're a small business, that doesn't have teams HR/accountants/finance people, and just do 1 transfer? In fact, why waste time splitting things out, changing the description of the transfer?
Again, if you're a one man band, why shouldn't you be able to have some flexibility on when you make the transfers? What's inherently wrong with that? e.g. I'm away on business, or holiday, I'm a one man band, I'll do the transfer for PAYE when I get back.

Because if you're a director of a company you own, you're running a business. You're not a "one man band".

[yMyjgT]

Thanks, understood. I'll talk to accountant about it and will change the way I'm doing it.

No business pays salary and dividends in a single lump sum transfer.

....but also, purely for the sake of argument ....why shouldn't a small (i.e. 1 man band) business take advantage of the fact they're a small business, that doesn't have teams HR/accountants/finance people, and just do 1 transfer? In fact, why waste time splitting things out, changing the description of the transfer?
Again, if you're a one man band, why shouldn't you be able to have some flexibility on when you make the transfers? What's inherently wrong with that? e.g. I'm away on business, or holiday, I'm a one man band, I'll do the transfer for PAYE when I get back.

[WordIsBond]

Just wondering why you think that is? I currently lump everything in one transfer. Is the reasoning, to make it clear to tax man (during an investigation for example) what the exact reason for the transfer was?

Yes, that's the reasoning.

Technically, if you have the dividend voucher and you file RTI, so you have clear paperwork, you can probably get away with this. But if you are ever investigated, when they see what you are doing you are going to have a lot of explaining to do.

You are running a business, right? So treat it like a business. No business pays salary and dividends in a single lump sum transfer. They pay their employees when they do payroll. They pay dividends out of after-tax profit to their shareholders. Start acting like a business, or HMRC will come along someday and decide you aren't a business, and things will get ugly. If your bank charges a nominal fee for the extra transfer, pay it. You'll recover it, plus a lot, if HMRC ever comes investigating, compared to the time and cost of defending the whole mess if your banking practices look suspicious.

[stek]

Just wondering why you think that is? I currently lump everything in one transfer. Is the reasoning, to make it clear to tax man (during an investigation for example) what the exact reason for the transfer was?

Oh dear....

[yMyjgT]

Some things ARE important.
1. Make sure the payments are not lumped together. Make a payment in your wife's name, then make a payment in yours. Two separate payments, with the individual as the payee showing in your business account. One payment clearly says it is to SimonMac, one clearly says it is to Mrs.
2. Make sure salary and dividend payments are not lumped together. She should get one payment for salary, another for dividend.

Just wondering why you think that is? I currently lump everything in one transfer. Is the reasoning, to make it clear to tax man (during an investigation for example) what the exact reason for the transfer was?

[No2politics]

Congratulations by the way.
Do you make company pension contributions? If so it might be worth making them personally. This would extend your basic rate by the gross contribution and allow you to declare more dividends. This is beneficial if your wife has no income as it allows you to make use of all her basic rate.

[Eirikur]

Last question, for those with a spouse do you pay salaries into join accounts or separate?

Salary in joint accounts, but dividends into separate.