Reply to: Modifying LTD share structure.

[THEPUMA]

there's a nun in the bath. knock at the door. `who is it?`

`the blind man`

`ok come in`

`right. where do you want your blinds?`

[ookook]

Never heard of Arctic? Go do a Google on "Arctic" and "Geoff Jones". It's only a rtrivial litle case; if they lose the House of Lords appeal, the new rules will apply to roughly 1 million small companies - there's only 50 a year at the mo becuase (a) it's still under appeal and HMRC are not starting any new cases or (b) the ones that are ongoing are clear breaches of the existing application of the law.

Yes I have heard of Arctic - that why i said "while it may be legally a grey area until the resolution of the Arctic case" in my previous post. Although I didnt know that HRMC aren't starting any new cases until the appeal is finished.

[ASB]

PS - what nun joke?

Two nuns in a bath.

One says: "wheres the soap"

Other replies "yes doesn't it"

Groan.

[malvolio]

Never heard of Arctic? Go do a Google on "Arctic" and "Geoff Jones". It's only a rtrivial litle case; if they lose the House of Lords appeal, the new rules will apply to roughly 1 million small companies - there's only 50 a year at the mo becuase (a) it's still under appeal and HMRC are not starting any new cases or (b) the ones that are ongoing are clear breaches of the existing application of the law.

[ookook]

I think the answer is that is bloody obvious to a blind man (what's that joke about a nun in the bath?!) what has happened and when you try and defend yourself in front of a jury of laypeople, they simply won't believe that your company paid a divi of £10K to your old mum, who withdraw it in cash and blew the lot on the horses.

The burden of proof would be balance of probabilities rather than beyond reasonable doubt (assuming it is not a criminal fraud trial) so it is just what the jury think is most likely.

whats all this talk of court about? quoting directly from the contractor uk website guide to S660:

>>>>>>>>>>>

Will I get caught?
If you have set up a Limited Company, are a knowledge based worker and your spouse, parent, or sibling owns any shares in that Company, but do not actually earn income for the Company, then yes, you could potentially get caught. Having said that, there are only about 50 cases a year that are actually enquired into at present. The Inland Revenue has also recently vowed to clarify tax rules for the hundreds of thousands of ‘husband and wife’ companies that use dividend payment as a means of income.


What will it cost me if I am caught?
If you do get challenged by the Revenue then to work out how much tax they will be asking for, just check to see how much your tax your spouse has paid on her income in the last 6 years at either the zero or basic rate of tax, then multiply that by 25%. Add to this interest compounded at about 6% a year on the outstanding amount and you will have a rough idea

>>>>>>>>>>

I dont see any mention of court proceedings in there. And judging by other threads on this board - while it may be legally a grey area until the resolution of the Arctic case - a certain percentage of people DO divide their dividends in this manner. Probably adopting a "calculated risk" strategy in the same way that you calculated the risk of paying a directors salary of 6K odd in your recent posting.

PS - what nun joke?

[THEPUMA]

I know its tax evasion, It was a hypothetical situation. I was just curious as to how it was caught if there is no paper trail. No one ever went to jail for wondering how a crime is comitted.

I think the answer is that is bloody obvious to a blind man (what's that joke about a nun in the bath?!) what has happened and when you try and defend yourself in front of a jury of laypeople, they simply won't believe that your company paid a divi of £10K to your old mum, who withdraw it in cash and blew the lot on the horses.

The burden of proof would be balance of probabilities rather than beyond reasonable doubt (assuming it is not a criminal fraud trial) so it is just what the jury think is most likely.

[ookook]

Tony and his mates are trying to get that covered.

Thanks for the advice guys, much appreciated

[ASB]

No one ever went to jail for wondering how a crime is comitted.

Tony and his mates are trying to get that covered.

[ookook]

I know its tax evasion, It was a hypothetical situation. I was just curious as to how it was caught if there is no paper trail. No one ever went to jail for wondering how a crime is comitted.

[ASB]

Pardon my ignorance in this matter - but whats to stop me giving my mum 10% shares and her drawing all the cash out and giving it to me?

Obviously there is nothing to stop her. It's just that it may have consequences in accordance with the law.

I think in those circumstances any reasonable person would probably consider that the benefit of the income generated fell to you. This would probably be caught under 660A (If it was you kids it would be 660B instead). If you gave/sold the shares to me you would probably be just as caught if this transaction occured.

So, the big question is would gift of the shares to your mum be a settlement. Simple answer: yes. But, how about a sale ??. That is much more difficult to answer. If the owner of shares benefitted from the income and you had no retained interest there are still other areas HMCR might care to attack you on. The Ramsey principle is one (although I don't think they dig this out very often). Equally they could probably come up with a fairly creative reason as to why it was still a settlement anyway.

If you take your thoughts to their colclusion:-

1) Find 9 non tax payers
2) Give them each 10% of your shares
3) have them give you dividends back
4) Pay no tax

I think it is reasonably safe to assume that the taxes act will have this covered.

Talk it over with your accountants, see what they think. An agressive accountant may suggest you give it a bash and see what happens - having explained the consequences of your view not prevailing (which could be serious - you are supposed to put income from settlements on your own SA return so if you view doesn't prevail you will at the least have submitted a false return and HMRC get quite excited about this).

You can find the details of the wording in this guide:-

http://www.hmrc.gov.uk/practitioners/guide_sba.pdf

[malvolio]

Pardon my ignorance in this matter - but whats to stop me giving my mum 10% shares and her drawing all the cash out and giving it to me?

Assuming there was no obvious paper trail like a bank transaction from her account to mine then surely she would be entitled to withdraw the money and spend it how she wants (ie give it to me)

Or is it the simple fact that a spouse/family member owns shares in the business but does not contribute earnings for the company that makes it a candidate for s660 investigation?

I think you need to study some case law. While the Arctic case might give clarity on husband/wife deals, merely handing divis to someone else and having them repay you personally free of tax is evasion and ever-so-slightly illegal. Do it if you fancy 10 years in jail, or stop pissing around and run your business properly.

[ookook]

Pardon my ignorance in this matter - but whats to stop me giving my mum 10% shares and her drawing all the cash out and giving it to me?

Assuming there was no obvious paper trail like a bank transaction from her account to mine then surely she would be entitled to withdraw the money and spend it how she wants (ie give it to me)

Or is it the simple fact that a spouse/family member owns shares in the business but does not contribute earnings for the company that makes it a candidate for s660 investigation?

[ASB]

Shareholders get dividends.

You give/sell whatever mum 10% of the shares then she gets 10% of the dividends.

Of course if any of the money finds it way back to you you could be in a whole heap of sh1t from S660 depending upon your view of this odious piece of legislation and the current cases being fought round it.

[ookook]

Does that also apply to family members other than your spouse?

Eg can I make my retired mum a gift of the extra shares? (I hate to see that tax allowance go to waste)

Or does she have to be made a director of the company as well as a shareholder?

[Flat Eric]

For tax reasons, you would be better to gift the shares to your wife than to issue her with shares or sell her them.

That's a good idea. Thanks for that Puma.