Reply to: Ltd Company - Joint Share holders

[Iain-Le-Roi]

Hi

Sorry not been on the forum for a while, it wouldnt let me on for a few days and looks like they've made some changes. Thanks to everyone who posted their advice. I think for now I will stay with one company with a view of maybe splitting it to two companies for the next tax year as to avoid being moved off the FR.

Thanks to Nixon for posting on here as you mentioned its not your normal practice to do so for a particular client. It has helped me understand the situation better, getting a mix of views.

Cheers

Iain

[Nixon Williams]

Presumably you don't think the associated business rules would preclude both companies from joining the flat rate scheme in this case?

No - not in my client's case.

"You are associated with another business in this special sense if:

■ one business is under the dominant influence of another
■ two businesses are closely bound by financial, economic and organisational links or
■ another company has the right to give directions to you
■ in practice your company habitually complies with the directions of another. The test here is a test of the commercial reality rather than of the legal form."

[THEPUMA]

Presumably you don't think the associated business rules would preclude both companies from joining the flat rate scheme in this case?

[Nixon Williams]

I am actually with Nixon Williams for my accounting who seemed against the idea. Is there anyone from Nixon posting at the moment who would like to comment/advise on this set up?
Iain

I am not usually keen on discussing a client's specific details on an open forum, however as your name is not too obvious and as you have asked....

1. Income Splitting can be a complicated area and in our experience clients do not wish to be as clear cut and diligent with their finances as your proposed arrangement would demand.

IF you can clearly separate your individual finances in a way that shows income has not been diverted to a lower earning partner then, yes a split share option may work.

In the 15 years I have been doing this, I cannot recall when I have seen this actually done by a client!

2. Your joint income levels exceed the threshold for being on the Flat Rate VAT scheme, although you have stated that you will both only work 35 weeks a year, hence you would fall under the threshold.

The Flat Rate scheme will enhance your income by 3.4% in the first year, if you are forced to leave the Flat Rate scheme the "lost" income would be quite significant. This was the main reason why we advised on setting up two companies.

3. Separate companies are clearly an easier way to proceed, although there would be extra fees, these would be more than covered from the Flat rate savings.

My advice remains to avoid this route (split shareholding), however you may have a different attitude to risk to me!

Alan

[THEPUMA]

It's most likely that although it would be paid to her account she'd be putting a fair chunk into our joint account to pay towards our mortgage and bills so as that is in both names I guess that would cause a problem.

I'm sure she'd be happy to spend it on shoes instead though )

I think it is clear that any money paid on her own stuff is fine. On balance, I think it would also be fine for her to pay her fair share of household costs into the joint account, although this would be a slightly more grey area and you would potentially be at the mercy of a maverick judge, should it ever get that far.

If I were in your shoes, I would do it.

[Iain-Le-Roi]

Why name Nixon as the company giving you the advice ?? Seems a strange one when you could have e-mailed Nixon and said based on what you have read on here...

A very strange way for a professional to treat your current accountants IMHO

I dont agree... I have spoken with Nixon about it and then come on here looking for alternatives. I havent named them to be negative or said anything negative about them. I know someone from there posts on here so just wondered what his thoughts were and if they coincided with what my account manager said.

People are far too quick to jump on peoples backs on this forum. As I said this post is not about being negative about Nixon as I am happy with the service so far, its about exploring altenative opinions/aproaches to my situation and discussing them with fellow contractors and accountants.

[Robot]

Thanks Steven.... I am actually with Nixon Williams for my accounting who seemed against the idea. Is there anyone from Nixon posting at the moment who would like to comment/advise on this set up?

Iain

Why name Nixon as the company giving you the advice ?? Seems a strange one when you could have e-mailed Nixon and said based on what you have read on here...

A very strange way for a professional to treat your current accountants IMHO

[lukemg]

I don't understand the problem ?
First - there is an advantage in paying the dividends equally if the company is earning well - You can make sure to use up both your personal allowances efficiently.
Second - Give her the difference AFTER you have received the dividend (for the period involved) you can easy work this out based on revenue from each of you. It is up to you what you do with that money after it is 'clean' !
The fun will start when either of you isn't working, I will take all that dividend thanks !
At the end of current contract, setup new co (takes an hour and a few quid) and keep it separate. People are quite happy to use their own kids against each other when their relationship goes 'norks up', what qualms do you think they would have about emptying a company account. 'It won't happen to me' - yeah right, they are ALL capable of it.

[Iain-Le-Roi]

At ClearSky we would advise the following:

If you are going to want to pay dividends in different proportions then the easiest way would be to have two classes of shares (say A and B shares). One of you holds each class and when a dividend is declared it is declared for that class. So, as an example if you wanted the A shareholder to be paid £6,000 and the B shareholder £4,000 you would simply declare a £6,000 dividend for the A share holder and £4,000 for the B.

Thanks Steven.... I am actually with Nixon Williams for my accounting who seemed against the idea. Is there anyone from Nixon posting at the moment who would like to comment/advise on this set up?

Iain

[Steven@Parasol]

ClearSky position

Hi

My Fiancée and I (both IT contractors) recently started up a ltd company to conduct our finances using an IT specialist accountancy firm. We both earn different day rates (high earner earns £100 more per day) but as we started the company as 50-50 share holders we have been told (or advised) that we should take home exactly the same dividend.

This creates a bit of a problem as it means that the money cant be split as it is earnerd. I asked the accountancy firm if there was any way round this and they said that as 50 50 share holders the dividend must be the same and that any transfer of shares between none married couples would be viewed as income shifting.

Does anyone know if it is advisible for dividends not to be the same for 50 50 share holders, or if there is any other way round this that keeps us compliant?


If you do not want to change the share structure then before a dividend is declared one of the shareholders can “waive” their entitlement to the payment, and more will end up with the other shareholder.



Are there any other Ltd company contractors out there in the same situation?

Thanks

Iain-Le-Roi

At ClearSky we would advise the following:

If you hold equal shares of the same class (A shares or B shares etc) then any dividend declared should be allocated equally. When you declare a dividend you declare the total amount you want to pay (say £10,000) and then this gets divided by the number of shares held. You don’t declare how much is to go to each person.

If you are going to want to pay dividends in different proportions then the easiest way would be to have two classes of shares (say A and B shares). One of you holds each class and when a dividend is declared it is declared for that class. So, as an example if you wanted the A shareholder to be paid £6,000 and the B shareholder £4,000 you would simply declare a £6,000 dividend for the A share holder and £4,000 for the B.

[biggles_1]

It's most likely that although it would be paid to her account she'd be putting a fair chunk into our joint account to pay towards our mortgage and bills so as that is in both names I guess that would cause a problem.

I'm sure she'd be happy to spend it on shoes instead though )

A couple of points:-

Iain-Le-Roi I would go down the A and B share route. No need to specify the income rights of each dividend but you can simply pay disproportionate dividends at your discretion so this gives you maximum flexibility.

Biggles - No need to sell at market value. Just transfer at nil value and do a holdover relief claim.

Re the point made earlier about the income shifting exemption not applying to unmarried partners, this is correct but it is equally important to realise that dividends paid to an unmarried partner would only be liable to the settlements legislation if those dividends made their way back to the fee earner. So if the unmarried non-fee earning partner spent the money on shoes and handbags, that would be fine. Whereas if dividends are paid to spouse or minor child, they are automatically deemed to have made their way back to the fee earner.

[THEPUMA]

And is the A and B share set up compliant in terms of current legislation. i.e if investigated by Hector does this stand up just as well as 50 50 share holders when in the IT contracting world?

Also how would moving from 50 50 share holders to A and B shares a month into the companies existance be percieved?

Thanks

Iain

I can't envisage a problem from either perspective. We dom this all the time and we've never had any problems from HMRC.

PUMA

[Iain-Le-Roi]

A couple of points:-

Iain-Le-Roi I would go down the A and B share route. No need to specify the income rights of each dividend but you can simply pay disproportionate dividends at your discretion so this gives you maximum flexibility.

And is the A and B share set up compliant in terms of current legislation. i.e if investigated by Hector does this stand up just as well as 50 50 share holders when in the IT contracting world?

Also how would moving from 50 50 share holders to A and B shares a month into the companies existance be percieved?

Thanks

Iain

[THEPUMA]

A couple of points:-

Iain-Le-Roi I would go down the A and B share route. No need to specify the income rights of each dividend but you can simply pay disproportionate dividends at your discretion so this gives you maximum flexibility.

Biggles - No need to sell at market value. Just transfer at nil value and do a holdover relief claim.

Re the point made earlier about the income shifting exemption not applying to unmarried partners, this is correct but it is equally important to realise that dividends paid to an unmarried partner would only be liable to the settlements legislation if those dividends made their way back to the fee earner. So if the unmarried non-fee earning partner spent the money on shoes and handbags, that would be fine. Whereas if dividends are paid to spouse or minor child, they are automatically deemed to have made their way back to the fee earner.

[biggles_1]

I'm still not sure how I would value the shares were I to sell half to my unmarried partner.

Would the sale be OK at the price I paid? The bank account balance divided by the number of shares? Would it have to be to do with the turnover/profit? I'm thinking the price I paid should be good enough as the prospects and business situation hasn't changed since then.

After that I am seeing it as a business arrangement with an unrelated party as suggested by Malvolio. As we're not related I don;t see how this could be a problem as long as she can spend the money on what she wants to and I can't make her give it to me or spend it on anything specific.

J.