Reply to: Paying spouses dividends...?

[PhilAtBFCA]

Artic Systems

scooterscot

I understand the Artic case might not have been as arduous had the shares been purchased rather than gifted.

The Artic case was won on two facts:-

1. that the shares were gifted, and as such were part of the spouses exemption ( gifts between spouses ).
2. the gift was more than just a right to income ( a share is a right to assets as well as income )

Phil

[PhilAtBFCA]

Bird and S660

Hi ASB

Yes I think you are right, a very thin case indeed. More importantly I think it demonstrates that HMRC will take action on these cases.

Phil

[scooterscot]

In a nutshell - On forming the company you could gift your wife some shares in the company, which can then receive dividends.

I understand the Artic case might not have been as arduous had the shares been purchased rather than gifted.

How much is your company worth? Just you? If you were to not exist tomorrow, the company would be gone, is that the case?

Then in that case get your wife to purchase a share rather than gift it, say £500 per share.

[ASB]

Be careful of Dividend Waivers see our blog for HMRC view on this. IMHO it is not a safe way to distribute income - if you agree a share split, get it right from the start and keep to it distributing the dividend income always in the same amount.

I think Buck covered the situation I described - so at least the speicals agreed with me

I just can't get my head around Bird though. It would seem to me that this would be caught with absolute certainty by the part of S660 relating to income in excess of £100 arising from parental gift being assessed to the parents. I appreciate they were trying to argue allowing them the interest was in exchange for the minor children allowing the company a loan but it does seem a bit thin to me.

[PhilAtBFCA]

Income Shifting and Splitting Dividends

Hi bollox ( gosh that sounds strange to write - I wanted to put Low instead of Hi - but dont want to offend or appear sexist).

The proposed Income Shifting rules have not been introduced so the current rules stand, we try and work within the current environment and not to worry whether the new rules will or wont be introduced.

So under the current legislation you need to be aware of S660 and Artic and also case law on Dividend Waivers.

In a nutshell - On forming the company you could gift your wife some shares in the company, which can then receive dividends. You can also pay a market rate salary for work that is actually done in the company.

If you do a contract inside IR35 this may provide no great benefit for that contract, but thats another thread entirely....

Be careful of Dividend Waivers see our blog for HMRC view on this. IMHO it is not a safe way to distribute income - if you agree a share split, get it right from the start and keep to it distributing the dividend income always in the same amount.

Caution - You need to set up the company in the right way from the start.

Hope thats helps

Phil

[bollox]

I'm reverting back to using a LTD company (was using an IOM scheme say no more)...

I've not used a LTD co. structure since 2001, had kept an eye on S660 and thought it had been blown out of the water by the arctic systems ruling

just rang around a couple of the big accountants and they are telling me that I can't (or they dont allow me) to split dividends with my wife

they gave some rather wooly and unconvincing arguments along the line of "well just in case"...

is this them being ultra cautious and toeing HMRC's line or is there some ruling/legislation i've missed (been a bit tied up with BN66 so it could of passed me by)

anyone recommend a good accountant who will ?

[ASB]

Thanks Gonzo!

Like all good contractors i need to be told the same thing at least 3 or 4 times before it sinks in

Contrary to popular belief even with a simple share structure you do NOT actually have to pay dividends equally overall (can't remember if I mentioned it in my previous reply, if I did sorry). You can achieve an unequal split by using dividend waivers. However there is a solid argument that it's can be a big red rag to HMRC. However there is a "safer" and a "less safe" way. The safer is that the company retains the waived dividend. The less safe is that it doesn't. By example

Retained funds 100k

LouC 50%
A.N. Other 50%

A.N. Other only want 30k so is only paid 30k, co still has 20k retained funds.

The significantly unsafe way would be to "nominally" increase the dividend to 140k. A.N. Other is entitled to 70k but only accepts 30k, leaving LouC 70k. The issue with this is that it is artificial, it relies on the waiver, otherwise the company could not pay the divi (it doesn't have the retained funds to do it).

HMRC have been known to have issues with both. Though they do het more excited about different share classes.

Sorry, just something else to throw in the mix.

[LouC]

Thanks Gonzo!

Like all good contractors i need to be told the same thing at least 3 or 4 times before it sinks in

[Gonzo]

Thanks for that.

On a related question. Say we 'decide' on a 70/30 split, how does this work re dividend payments. Can she only be paid 30% of the total dividends paid from the company.

eg the company pays out 35000 dividends total.
70% = 24.5 (to me)
30% = 10.5 (to her)

Cheers
Lou

Assuming that you have a simple share structure with a single class of share issued, then each share receives an equal proportion of the total declared dividend.

In that case the figures in your example would be correct.

Of course, if you have an existing company then there is more than meets the eye to rearranging the share capital which would probably need input from an accountant.

EDIT: I refer you to ASB's more comprehensive answer on the topic provided when you asked it back in November.

http://forums.contractoruk.com/688112-post4.html

[LouC]

Cheers all

Thanks for that.

On a related question. Say we 'decide' on a 70/30 split, how does this work re dividend payments. Can she only be paid 30% of the total dividends paid from the company.

eg the company pays out 35000 dividends total.
70% = 24.5 (to me)
30% = 10.5 (to her)

Cheers
Lou

[Fred Bloggs]

Fill yer boots.

[ASB]

Here's another question, does the split matter?

Can I, for insistence, go 49/51 with the shares between my wife and I?

I believe my accountant advised against it, but why should it matter? If it's legal then why is the phobia still there? Ah because HMRC can move the goal-posts at it's discretion...

The fact that she could vote you off the board might be a possible drawback.

[BrilloPad]

Yes. It won't happen.

HTH

Was that because of the PCG perchance?

[Platypus]

Here's another question, does the split matter?

Can I, for insistence, go 49/51 with the shares between my wife and I?

I believe my accountant advised against it, but why should it matter? If it's legal then why is the phobia still there? Ah because HMRC can move the goal-posts at it's discretion...

Back in the days when I had a spouse, we had a 51:49 share split. On the advice of my accountant.

[scooterscot]

Here's another question, does the split matter?

Can I, for insistence, go 49/51 with the shares between my wife and I?

I believe my accountant advised against it, but why should it matter? If it's legal then why is the phobia still there? Ah because HMRC can move the goal-posts at it's discretion...