Does my wife need to fill in a Tax Return?

[monobrow]

Sorry to deviate but is this regular income shifting (or whatever it's called) or something else? From a common sense perspective at least, it looks dodgy to me, the kind of thing which explains why HMRC aren't keen on contractors.

Genuine question

hey d00hg,

As it was explained to me, the whole "income shifting" piece only really comes into effect post creation or "gifting" shares and if the person you are shifting it too isn't your wife.

afaik, if you do it 50/50 at creation (ordinary shares) and you are married, its all above board and artic proved that.

@notallthere,
the reason i'm not doing the salary is because in all honesty there isn't much/anything for her to do, so didn't fancy taking the risk of having to explain it later on to hector. but yes, in theory I could set her up, just cba with the drama. (i'm not that greedy!)

[meanttobeworking]

... Oh how I wish that I had kept a copy of that web page...

If you're lucky you might be able to find it on this... Internet Archive: Wayback Machine

[Fred Bloggs]

Until the Arctic Systems case hit the news, the website of the DTi as it used to be called actually had a web page for small businesses where the DTi actually recommended that a small incorporated business should have a 50/50% share ownership. The page was soon removed when Arctic Systems hit the news. Oh how I wish that I had kept a copy of that web page. Let's face it, the contractor's wife faces just as much of the risk from a contractor being benched long term without income.

[NotAllThere]

It's only dodgy if you believe the crap about tax "fairness". It's legal, it's efficient, and HMRC were soundly beaten over the question. If the wife pays for her share, there's not even the gifting component.

Personally, I think monobrow is missing a trick - if his wife doesn't work - by not taking her on as an employee.

The right amount of tax to pay is that defined by law. Any other definition is political claptrap. Where the law is being used in a convoluted, artificial manner to avoid tax, that's a tax avoidance scheme, which is one level between tax mitigation and evasion. Your spouse receiving 50% of the dividends from the profit your company makes is normally investment income. It's not even avoidance.

[d000hg]

I am the sole director of my limited company.

My wife is a shareholder (split 50/50 at creation, ordinary shares I believe) as advised by my accountant.

My wife is not a director, nor an employee, doesn't recieve any salary, but she does recieve income when I declare dividends. My wife has no other employment or income from any other sources.

Sorry to deviate but is this regular income shifting (or whatever it's called) or something else? From a common sense perspective at least, it looks dodgy to me, the kind of thing which explains why HMRC aren't keen on contractors.

Genuine question

[monobrow]

If you stick to the actual law then you don't need to file a return if they haven't asked you to and you have no declarable income which tax is due. However, I would rather go with HMRC's guidance and complete one if it fits their criteria to pre-empt any comeback. It's probably not worth the hassle of arguing with them about the law on such a simple task.

If there is no personal tax to pay for 2010, any late filing penalty is currently reduce to zero. Good luck.

Actually this wont be for 10/11 as I was on the dark side of permiedom until Aug 2010. anyhoo, hypothetically speaking (of course) if it isn't "illegal" to NOT do one, then we won't bother.

cheers!

[Craig@Clarity]

If you stick to the actual law then you don't need to file a return if they haven't asked you to and you have no declarable income which tax is due. However, I would rather go with HMRC's guidance and complete one if it fits their criteria to pre-empt any comeback. It's probably not worth the hassle of arguing with them about the law on such a simple task.

If there is no personal tax to pay for 2010, any late filing penalty is currently reduce to zero. Good luck.

[NotAllThere]

Generally, I understood that you only have to fill in a tax return if you owe tax. For people in the situations quoted above, I'm sure that HMRC would like them to fill in a return, because they'll consider that they must be owing tax. Certainly from the wording it's unclear whether there's a requirement or whether they simply advise you to.

[xoggoth]

But assuming the combined totals of above do not give rise to a tax liability is there actually a legal requirement to do a tax return or is this just one of those things they wrongly state on their website, like all directors must do a tax return?

[monobrow]

If her dividends are over £10,000 then she will to.

As per HMRC:

Income above a certain level from savings, investment or property
If you don't already complete a tax return, you'll need to do so if you receive any of the following:

•income from savings and investments of £10,000 or more
•income from untaxed savings and investments of £2,500 or more
•income from property (before deducting allowable expenses) of £10,000 or more
•income from property (after deducting allowable expenses) of £2,500 or more
•annual trust or settlement income on which tax is still due (even if you’re only treated as receiving this income)
•income from the estate of a deceased person on which tax is still due

HM Revenue & Customs: Do you need to complete a tax return?

Thanks Clare, perfect

[Clare@InTouch]

If her dividends are over £10,000 then she will have to.

As per HMRC:

Income above a certain level from savings, investment or property
If you don't already complete a tax return, you'll need to do so if you receive any of the following:

•income from savings and investments of £10,000 or more
•income from untaxed savings and investments of £2,500 or more
•income from property (before deducting allowable expenses) of £10,000 or more
•income from property (after deducting allowable expenses) of £2,500 or more
•annual trust or settlement income on which tax is still due (even if you’re only treated as receiving this income)
•income from the estate of a deceased person on which tax is still due

HM Revenue & Customs: Do you need to complete a tax return?

[monobrow]

I am the sole director of my limited company.

My wife is a shareholder (split 50/50 at creation, ordinary shares I believe) as advised by my accountant.

My wife is not a director, nor an employee, doesn't recieve any salary, but she does recieve income when I declare dividends. My wife has no other employment or income from any other sources.

I am absolutely 100% sure that she (both in fact) will remain within the "lower" i.e 10% for dividends tax credit system thingy.

So, question is..

Does she have to fill in a tax return? The obivous answer is she probably should, but does she HAVE to legally? will Hector look badly on this etc etc.

thanks for reading!