Safe and Effective tax

[oraclesmith]

1. Is it safe from taxman if I don't get paid via monthly pay cycle?
2. Is giving dividents to both the shareholders a safe approach?
3. If I get paid the minimum (£5400 something), am I be eligible for NI benefits?

1. It doesn't matter. It's your company so you can pay yourself how you like. I pay myself a few times a year, whenever I believe the company can afford it. The directors of most genuine startup firms don't pay themselves a regular salary unless they really need to, because they're putting all their time and spare cash back into the business.

2. There is a broad assumption made by contributors to these threads (even the accountants) that the other shareholder is your wife/partner and that he/she isn't working, or at least not working for your company apart from doing a bit of admin - and that they will end up with a substantial dividend to utilise their unused tax allowance. Which is a bit of a big assumption !

The settlements legislation applies when the other shareholder doesn't really 'deserve' the dividend. If the other shareholder is a higher-rate taxpayer then it may be beneficial for you to declare a settlement with you as settlor, especially if both dividends plus your salary still keeps you under the 40% tax bracket. In this case the current settlements legislation will work in your favour and the other shareholder will avoid having to pay additional tax on his/her dividend. This is what I do, because my wife is a shareholder but she takes no real part in running or working for my company.

If the other shareholder is a fellow (substantial) fee earning consultant working for your company, then again, there is no real problem with having both of you as shareholders because you both make roughly equal contributions to company profits. In my opinion.

[Pondlife]

Thanks Alan, meridian.

Then, is it accountant's responsibility to make sure the company doesn't get caught by IR35???

No. IR35 is based on your contract conditions and working practises.

I haven't got my contract checked by some specialist yet. Can I do that now? Whom would you suggest I go for?

cheers,,,

Bauer & Cottrell
Accountax

HTH

[freelancer_in]

Thanks Alan, meridian.

Then, is it accountant's responsibility to make sure the company doesn't get caught by IR35???

I haven't got my contract checked by some specialist yet. Can I do that now? Whom would you suggest I go for?

cheers,,,

[Nixon Williams]

Wot extra work? Mine just said write yourself a cheque and put it in the dividend column of the spreadsheet we sent you

If we prepare a dividend for a client we issue the dividend vouchers and board minutes so that all the correct paperwork is there. An entry on a spreadsheet is not conclusive evidence of a board agreement to pay a dividend etc.

Alan

[malvolio]

Interesting. Haven't seen that one before... I would tend to follow Alan's advice myself, since that may be a little over-cautious but safely covers the bases for this tax year. Basically there are two scenarios at present, that PCG are right or that HMRC are right. You can choose either one, as long as you explain why on your SA form - but if you are wrong and we lose Arctic, HMRC will be coming for the missing tax and you will be at the head of the queue. Far better, if you have the option, to set it up in a way where S660 doesn't possibly apply until we know the rules.

And if the Arctic case isn't a test case, why are HMRC spending around £500k to take it to the Lords when the amount under dispute is around £7k....??

[meridian]

General advice would be against two shareholders until the outcome of the Arctic case is known in the new year, safer to keep to one shareholder at the moment. Depending upon who the other shareholder is, you might be able to transfer shares to them if the case goes against the Revenue.
<snip>

A forum I went to a little while ago hosted by the PCG recommended something different:
As the Arctic case isn't a test case, each situation has to be judged on it's merits, so their recommendation was to set out your circumstances slightly differently to the Arctic circumstances, e.g:
- instead of 2 shares issued, issue 100
- instead of 50/50 split, make it 40/60
- make the non-fee-earner a director instead of just Secretary
etc

[Meerkat]

eh?

Wot extra work? Mine just said write yourself a cheque and put it in the dividend column of the spreadsheet we sent you

[Nixon Williams]

Hi,

My accountant advised not to do 2 shareholders, just 1. And not to do a monthly dividend, in case it's perceived as salary if it comes too regularly.

I'm sure some would agree, and others disagree - I follow his advice since that's what I pay him for!

Faqqer

Provided dividends are paid from profits then there is no problem with monthly dividends. I would guess that accountants advise against monthly dividends because of the extra work!

[TheFaQQer]

Hi,

My accountant advised not to do 2 shareholders, just 1. And not to do a monthly dividend, in case it's perceived as salary if it comes too regularly.

I'm sure some would agree, and others disagree - I follow his advice since that's what I pay him for!

Faqqer

[Nixon Williams]

General advice would be against two shareholders until the outcome of the Arctic case is known in the new year, safer to keep to one shareholder at the moment. Depending upon who the other shareholder is, you might be able to transfer shares to them if the case goes against the Revenue.

We would suggest (as we do with our clients) that payments of salary and dividends are paid monthly as this is easier, there is no problem with this, although if a client prefers quarterly dividends then that is not a problem.

There is no absolute safe way of knowing whether the contract is caught by IR35 or not, although some of the legal specialists have a good record so far.

I hope this helps.

Alan

[freelancer_in]

As many of you, I am a newbie on this contractor boat. I have a LTD company and signed my first contract. My accountant giving me an idea of having 2 shareholders and paying both of them the dividents and expenses. He suggests not to run a pay cycle. I am on flat rate VAT scheme. Now the questions are
1. Is it safe from taxman if I don't get paid via monthly pay cycle?
2. Is giving dividents to both the shareholders a safe approach?
3. If I get paid the minimum (£5400 something), am I be eligible for NI benefits?

If there is any better and safe approach please suggest me and I will fire my accountant if I am being guided wrong. Your suggestions are very important as you have been through this.

I wud appreciate if someone can tell me how exactly I can findout whether I am inside/outside IR35.

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freelancer_in