Reply to: Advice for returning to contracting

[GhostofTarbera]

Why bother with a sipp also when covid19 will kill most pensioners anyhoo


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[TheDogsNads]

If he's furloughed, intending contracting to April 2021, has a dormant company with 80 odd grand in it, bothered about IR35 issues and is going to mess around giving his wife shares then take them off her etc, why not just simplify things and just draw day to day money needs from the company?

[WordIsBond]

Bad idea to change shareholdings twice in a year, could draw attention. Not illegal as such but could fall under aggressive avoidance. I wouldn't recommend that. But what some of these guys are overlooking is this:

I made my company dormant with about 80k in the business account.

combined with this:

4. I can put 40k into my SIPP (like i did before)

That makes it a very small problem.

1. Make the company active again.
2. Pay yourself the minimal salary but no divs for as long as you can afford it.
3. Then decide.

If Mrs still doesn't have a job, make her a 50% shareholder and pay equal divs to both of you. Keep the divs as low as you can afford for most of the year so you don't put her into higher rate if she gets a good job, but presumably by sometime in the autumn, at the latest, you won't need to worry about that for this tax year.

If she does get a job, give her a 5% share, pay her £2K in divs and you £38K. That takes advantage of the div allowance for her and keeps you in basic rate.

When you get down to about £40K, if the share structure isn't right for you anymore, don't change it. Just dump the rest into your SIPP, close the company, open a new one with the right share structure, and carry on. Obviously, if the share structure is still fine (say, Mrs has 50% and isn't employed, or Mrs has 5% and is employed), just carry on.

But your reserve isn't big enough to make it an issue to close the company, especially if you are willing to dump half of it to a pension. That means you've only got £40K to extract.

This advice may be wrong if Mrs is a bank executive who will earn £40K a month.

[WordIsBond]

I gratefully accept the idiot of the day award.

Unnecessarily restrictive.

[Lance]

Wasn't she already director in the Arctic systems and the argument it was fair for her supporting hubby as he ran the business and her directors responsibility. In this case she's nothing more than a one off tax mule.

It's aggressive avoidance, pure and simple, so whatever test the want to apply, it will fail.

Or..... she takes the shares, doesn’t get a job and they carry like that for good... pure and simple income shifting as per Arctic systems.

I think the point is, fine to give her shares, but don’t duck around with them.

[NotAllThere]

I would only do it the once though, when she gets a job.

And then she gets made redundant and you do it again... The main point of taking dividends (at least when I did it) is to avoid paying both ERNIC and EENIC - making you worse off than an employee. Income levelling is a good reason to take dividends as well.

But adjusting shareholdings regularly to minimise tax... nah. But it's your backside that HMRC will ream, so who cares what a bunch of moralisers think, right?

[northernladuk]

To be fair that’s why Arctic systems split the shares....

Your point, I think, is that changing share split, is not protected by the Arctic systems test case.
However I don’t believe as a one off it would be a problem.

changing twice a year might attract more attention but whether that would fail a test, or if HMRC would even pursue it is speculation.

Wasn't she already director in the Arctic systems and the argument it was fair for her supporting hubby as he ran the business and her directors responsibility. In this case she's nothing more than a one off tax mule.

It's aggressive avoidance, pure and simple, so whatever test the want to apply, it will fail.

[Lance]

Because you are going to add her purely to offload of dividends and take her off soon after. You are doing HMRC out of tax money with a pretty aggressive tactic.

To be fair that’s why Arctic systems split the shares....

Your point, I think, is that changing share split, is not protected by the Arctic systems test case.
However I don’t believe as a one off it would be a problem.

changing twice a year might attract more attention but whether that would fail a test, or if HMRC would even pursue it is speculation.

[northernladuk]

I can add my wife as a shareholder with no issue. What am I missing here that makes you think HMRC will look on this unfavourably?

Because you are going to add her purely to offload of dividends and take her off soon after. You are doing HMRC out of tax money with a pretty aggressive tactic.

[too_many_details]

Remember to factor in upcoming IR35 rules


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Good point, and thats why I'm thinking of only contracting until April 2021 and then go back to perm.

[too_many_details]

Twice. You allocate her the shares and then remove them. They link her name between change in shareholding and one year of dividend income on Self assessment and boom...

Everyone wanting to aggressively syphon money out of your limited would only need 2 changes as well...

According to what I have read, I can add my wife as a shareholder with no issue. What am I missing here that makes you think HMRC will look on this unfavourably?

[GhostofTarbera]

Remember to factor in upcoming IR35 rules


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[too_many_details]

Twice. You allocate her the shares and then remove them. They link her name between change in shareholding and one year of dividend income on Self assessment and boom...

Everyone wanting to aggressively syphon money out of your limited would only need 2 changes as well...

So what legitimate reasons would there be to add and remove a shareholder? I've looked at the government sites and they show how to do it.

[northernladuk]

I would only do it the once though, when she gets a job.

Twice. You allocate her the shares and then remove them. They link her name between change in shareholding and one year of dividend income on Self assessment and boom...

Everyone wanting to aggressively syphon money out of your limited would only need 2 changes as well...

[too_many_details]

The reason you need to use your accountant is because you clearly don't know that divis are taxed at 32.5% in the higher rate.
Manage your accountant FFS. Get them on the phone and donl;t let them go till they've answered your queries to your satisfgaction...

even better. Switch now before you really need them.

I don't want this thread to be about my accountant. I'm looking for advice to bring to my accountant for actioning. I will change my accountant at another point in time, not today.