Reply to: Anyone used accountants4contractors?

[Ardesco]

3) Fair, oh I see what you meant. The above para is an explanation of what is fair. It would be imposible for the legislation to define fair as it will differ from case to case, but the simple (to explain) test is the one above - can you convince a disinterested party that you would give the same deal to a person who was not connected to you?

Well yes easy to convince somebody that I would pay my wife the same for the work she is doing as I would somebody else. The problem is the shares.

My wife put money into the business when I started up and as a result got a shareholding. She now has shares unless she sells them and there is nothing I can do about that. When I pay out a divi I legally have to give my wife divi money as well, I can't ignore the fact she is a shareholder. I would also not gift shares to somebody that I employed to do her job should she stop (They wouldn't have put any money into the business, why should they have shares?

Here is my problem with the new legislation. Why should my wife have to relinquish her shares now that they have decided they don't like the fact she gets divis? If she did decide to stop doing the job and I employed somebody else why should she still not profit from the shares she purchased when the business was started up? I own some Barclays shares, I wasn't forced to sell them when I stopped working for Barclays and I still get divi's. Why should the rules be different for my company and my wife?

No matter how much you try to argue against it, it is a cynical move designed to screw over small companies while keeping large ones happy with the status quo.

[tim123]

Well in the case of my business it is quite a bit more than that as she runs all the plan b and plan c stuff as well, but I digress.

The fact is you may say it is not something worth employing somebody for, but if you did what sort of wage would you expect to be paying them? I can't see anybody accepting a job with my company to do monthly invoicing, vat, PAYE etc for less than minimum wage, and I don't see myself finding somebody competent for less than £20,000 a year. Does this mean that the IR can go into any business they like and say that you shouldn't employ somebody because they don't think that the person is earning a fair wage for the job they are doing and that they should be paid less?

I keep using the term fair because that is what the legislations is promoting, a "fair" wage. I am not asking you if it is right or wrong, I am asking you what you think "fair" is in regards to this legislation.

If the legislation explained in detail what it meant by fair then I may not be making as much noise, the problem is how do we define fair?

1) You are in a small minority if your partner does more than I have suggested (wrt company accounts).

2) The legislation does not stop you employing her and paying her a wage. It stops (discourages) you from distributing profits to her. However, if any of her work generates additional income then you are allowed to distribute profits to her. ISTM that this is consistant with how you would pay A.N.Other for the task.

3) Fair, oh I see what you meant. The above para is an explanation of what is fair. It would be imposible for the legislation to define fair as it will differ from case to case, but the simple (to explain) test is the one above - can you convince a disinterested party that you would give the same deal to a person who was not connected to you?

tim

[tim123]

You quoted this previously:



Well it will affect them by:
1. Causing them more work as they will have to generate and keep more paperwork for everything they do in the business.
2. Putting them under the threat of being accused of income shifting if one of them can't work for a large part of a year or more.

Other small business organisations moan about the government (of any political persuasion) causing more red tape for small businesses this is exactly what this draft legislation if implemented will cause.

Sorry, the second quote does not contradict the first. (and I did say in the second that it would create more paperwork).

I fail to see what you are suggesting I have said, that is significantly different to what you have said?

tim

[SueEllen]

Then you obviously misunderstand my post.

I CAN clearly see that it is intended to target ALL business, and I am sure that I said exactly that.

tim

You quoted this previously:

OTOH, it's not meant to affect the family running a shop together, and apart from the need to keep some records to show how they have shared the work, doesn't. (Yes I know the paper work will be hated, but it is necessary if this change happens).

Well it will affect them by:
1. Causing them more work as they will have to generate and keep more paperwork for everything they do in the business.
2. Putting them under the threat of being accused of income shifting if one of them can't work for a large part of a year or more.

Other small business organisations moan about the government (of any political persuasion) causing more red tape for small businesses this is exactly what this draft legislation if implemented will cause.

[Ardesco]

For one invoice a month and one VAT return a quarter (and perhaps monthly PAYE)

You're 'aving a larf.

No-one in their right mind would EMPLOY someone on an annual basis for such a small amount of work, they would engage a freelance book-keeper on an hourly rate.

And please stop asking me if things are fair. All I am doing here is explaining to you the dynamics of your company that are the rational behind this legislation. I have made no comment upon its rights or wrongs and by asking "is it fair" you are implying that I have said that I think it is, which is something that I HAVE NOT DONE!

tim

Well in the case of my business it is quite a bit more than that as she runs all the plan b and plan c stuff as well, but I digress.

The fact is you may say it is not something worth employing somebody for, but if you did what sort of wage would you expect to be paying them? I can't see anybody accepting a job with my company to do monthly invoicing, vat, PAYE etc for less than minimum wage, and I don't see myself finding somebody competent for less than £20,000 a year. Does this mean that the IR can go into any business they like and say that you shouldn't employ somebody because they don't think that the person is earning a fair wage for the job they are doing and that they should be paid less?

I keep using the term fair because that is what the legislations is promoting, a "fair" wage. I am not asking you if it is right or wrong, I am asking you what you think "fair" is in regards to this legislation.

If the legislation explained in detail what it meant by fair then I may not be making as much noise, the problem is how do we define fair?

[oracleslave]

For one invoice a month and one VAT return a quarter (and perhaps monthly PAYE)

You're 'aving a larf.

No-one in their right mind would EMPLOY someone on an annual basis for such a small amount of work, they would engage a freelance book-keeper on an hourly rate.

And please stop asking me if things are fair. All I am doing here is explaining to you the dynamics of your company that are the rational behind this legislation. I have made no comment upon its rights or wrongs and by asking "is it fair" you are implying that I have said that I think it is, which is something that I HAVE NOT DONE!

tim

What are the implications for someone like me who's wife does the accounts etc as discussed above, but also has take the odd contract (about 1 a year) for the last couple of years. In other words she has also been a revenue earner (although admittedly significantly less than me) as well as doing the admin/accounting type tasks.

[tim123]

Lets be realistic here. A fair wage for somebody running the accounts side for a whole business would be in the £30,000~ a year mark.

For one invoice a month and one VAT return a quarter (and perhaps monthly PAYE)

You're 'aving a larf.

No-one in their right mind would EMPLOY someone on an annual basis for such a small amount of work, they would engage a freelance book-keeper on an hourly rate.

And please stop asking me if things are fair. All I am doing here is explaining to you the dynamics of your company that are the rational behind this legislation. I have made no comment upon its rights or wrongs and by asking "is it fair" you are implying that I have said that I think it is, which is something that I HAVE NOT DONE!

tim

[Ardesco]

The problem is that they have already drawn the lines in the sand. They made this legislation in response to the Arctic Systems case where the spouse was running the admin side of the business and was taking a "fair" wage.

Lets be realistic here. A fair wage for somebody running the accounts side for a whole business would be in the £30,000~ a year mark. Now if you have your wife do this work and then pay her £5,000 and divvy out the rest she will be in the £30,000~ a year mark. Now assume that I pay myself £5,000 a year and divvy out so that I am in the £30,000~ a year mark as well.

Do you think the IR is now going to come at me with this new legislation saying that I should have earnt in the £60,000~ a year mark and should be taxed accordingly? Is this fair?

I would expect the vast majority of small business owners will be living off the money they can take out of their company without hitting the higher tax band and saving the rest for a rainy day, this is going to unfairly affect them.

[tim123]

I understand your rant but I'm trying to make it clear to those like tim123 who clearly can't see that the draft legislation while it is intended to target husband and wife teams, will allow HMRC to target all incorporated small businesses where there is more than one shareholder.

Then you obviously misunderstand my post.

I CAN clearly see that it is intended to target ALL business, and I am sure that I said exactly that.

tim

[tim123]

I am not being deliberately dumb, you are missing the point. If my wife helped me set up the business and some of our joint funds were put into the start-up why shouldn't my wife expect to get some shares? If I had started up with my mate Bill and we had both put money into the start-up Bill would have got shares as well.
.

I didn't miss it, because you didn't make it. You said anyone can have shares in my company, implying that they had been given to them (or sold at nominal value).

My answer stands. The intention of the new rules is that a shareholder is entitled to get back from the company, a reasonable return from what they put in.

So your wife is entitled to share in the value of the company on the basis of a reasonable return for invested capital and effort, that made a material difference to the well-being of the company (and a one pound subscription or even one hundred pound, at conception, is unlikely to be material).

Anything above this, is more than likely only to have been paid to the shareholder because they are your spouse (and for no other reason) and the revenue are seeking to tax this money in the hands of the giver, on that basis.

Once again, you are perfectly entitled to think that this taxation basis is wrong. It beggars belief that you cannot see why there is an arguement that they should.

How is this fair? I can gift/sell shares in my company to anybody I like, but any income my wife gets is having extra tax placed on it simply because I married her.

No, they are only taxing the income that you, wearing your hat as director of the company, have GIVEN to her, that you never ever in a million years would have given to someone else. This is not ANY income, it is SPECIFIC income.

The vast majority of small business are family business, and the vast majority of large businesses are not family businesses. This legislation is designed to purely attack family businesses, it is cynical, contemptuous and quite simply wrong.

What has this got to do with you not understanding why the shareholding of your company is different to, e.g Barclays Bank shareholders?

This legislation is designed purely to attack the distribution of income from a working director to a non working director. It just so happens that this attacks family businesses, because in a non family business directors have no incentive to be divert income to shareholders for tax saving reasons.

tim

[SueEllen]

I may have focused on husband and wife in my rant above, but that is probably because that is how it is going to personally affect me the most. My arguments would be the same for any member of my family though.

I understand your rant but I'm trying to make it clear to those like tim123 who clearly can't see that the draft legislation while it is intended to target husband and wife teams, will allow HMRC to target all incorporated small businesses where there is more than one shareholder.

The examples in the draft legislation clearly show:
1. if you gift/sell shares to anyone who doesn't work in the business whether related or not
2. if someone who holds shares in the business and works for it but then gives up working for whatever reason
then HMRC could accuse you of income shifting.

[Ardesco]

Malvolio has a vested interest professionally but not personally.

If you read the draft legislation properly you will see that it's not just out to target husband and wife businesses but all small businesses run by families or partners including what you would consider "traditional" businesses who have been advised to incorporate.

There are situations in all small businesses where for whatever reason one of the shareholders can't or decides not to work for a year or more, and under this legislation any dividends declared which they receive will be income shifting.

You can argue the law is only intended to target husband and wife businesses but lots of laws have been passed that when tested through the High Court and House of Laws have been show to cover those who it wasn't intended to cover.

I may have focused on husband and wife in my rant above, but that is probably because that is how it is going to personally affect me the most. My arguments would be the same for any member of my family though.

[SueEllen]

Malvolio has a vested interest professionally but not personally.

If you read the draft legislation properly you will see that it's not just out to target husband and wife businesses but all small businesses run by families or partners including what you would consider "traditional" businesses who have been advised to incorporate.

There are situations in all small businesses where for whatever reason one of the shareholders can't or decides not to work for a year or more, and under this legislation any dividends declared which they receive will be income shifting.

You can argue the law is only intended to target husband and wife businesses but lots of laws have been passed that when tested through the High Court and House of Laws have been show to cover those who it wasn't intended to cover.

[Ardesco]

Are you being deliberately dumb?

It's because you are in control of the dividend paid on those shares. The argument is that if the person holding those other shares wasn't your wife, you would never in a million years declare such a dividend. And they are right, you wouldn't, would you?

You have every right to oppose this legislation. But if you really don't understand why it is being proposed, you are playing in the wrong playground.

tim

I am not being deliberately dumb, you are missing the point. If my wife helped me set up the business and some of our joint funds were put into the start-up why shouldn't my wife expect to get some shares? If I had started up with my mate Bill and we had both put money into the start-up Bill would have got shares as well.

This new legislation means that Bill's shares are now worth more than my wife's shares because any money my wife's gets will be taxed as my money. Bill on the other hand is sitting pretty with the same tax burden as before.

How is this fair? I can gift/sell shares in my company to anybody I like, but any income my wife gets is having extra tax placed on it simply because I married her. Is this government against married couples? Should I have got her pregnant and not married her and let her get herself a nice free council house and then given her some shares and let her have dividends through them tax free as maintenance? Which is going to cost the taxpayer more money?

In the past couples were encouraged to plan for tax efficiently and utilise the advantages that sharing income could bring. Nu Liemore are taking this option away and making us married couples pay more while giving the single parents who can't be arsed and are happy to live on state handouts (and no this is not all single parents before and indignant single parent who does pay their way jumps in) even more of our money. Nu Liemore is systematically destroying family values in this country and this is yet another piece of legislation that is a big two fingers up to hard working couples.


Am I pissed of? YES!

It is going to affect how much I have in my hand at the end of the month, it is going to increase my tax burden (yet again) and finally it means that I am undoubtedly going to have issues as I try to pay my wife a fair sum for the work she does on our business (Yes my wife actually does quite a bit of work for those shares that she has).

The vast majority of small business are family business, and the vast majority of large businesses are not family businesses. This legislation is designed to purely attack family businesses, it is cynical, contemptuous and quite simply wrong.

[tim123]

Oh do pay attention, FFS. The draft is horrible, vague and delierately obscure..

It seems reasonable to me (in as far as what it is attempting to do).

We are pointing out where it is deficient or unclear, but well be damned if we'll tell them how to improve it.

In which case, it will be implemented as originally drafted. Who's the loser here?

As for "focused", their target is 85,000 small businesses. The draft if applied as written puts around 1 million in scope, including your mate with his widget factory.

As he should be (if it is to be implemented at all). He is doing nothing that qualifies him to share income with his wife, if such a sharing is disallowed.

Or are you complaining that the impact assessment is wrong? When was the last time that the Treasury got one right?

And even if you aren't caught you would have to track, record and value every single contribution any connected shareholder made and they could still challenge you to prove you were outside.
.

I think that is a very extreme view. I am sure a simple, number of hours - type of task list, will be enough. Yes they can challenge you, but they challenge lots of other things that small companies do (like travel expenses for example)

And I won't go into blowing the priniple of independent taxation, nor those of property share on divorce, nor the intent of the original laws, nor the fact that all our economic equaivalents permit or even encourage such a thing.

These are all irrelevent. If the Government of the day want to change the law, what the law was yesterday, is completely irrelevent. (When will the PCG guys understand this?)

As to the bit about competitors allowing it, many of them do not allow the concept of one employee companies at all, so there is no possibility to income share.

As I said to my (NL) MP yesterday, it's a badly conceived, divisive and poorly thought out crock of beans and should be killed at birth.

We both know that this is the view of someone with a vested interest in not seeing it happen.

And I'll be surprised if the MP doesn't know this as well and will ignore your complaint for that reason. If you want to influence the debate, you have to be constructive, which you seem to be refusing to do.

tim