Reply to: tax benefit of having Wife as employee/shareholder

[Old Greg]

Don't just roll over and take it, talk to an accountant, tell them what happened and see what they say. It may be that you can quite legitimately save some tax here!

And if you can't, is it worth sticking the excess into a SIPP? Especially if you are an old timer.

[Wanderer]

As you say, I will take it as a lesson learnt and try to persuade my Wife to become an employee and/or director

Don't just roll over and take it, talk to an accountant, tell them what happened and see what they say. It may be that you can quite legitimately save some tax here!

[Old Greg]

As you say, I will take it as a lesson learnt and try to persuade my Wife to become an employee and/or director

No. A Shareholder.

[oldtimer45]

Thanks for all the advice

As you say, I will take it as a lesson learnt and try to persuade my Wife to become an employee and/or director

[stek]

Can you have £5k petty cash?

[Wanderer]

It is fudged as we know full well it isn't a directors loan.

You should work for HMRC.

I read the original post again and all the OP says is that he "took the money". Why should we presume that he has not taken it as a director's loan? In any case, if he doesn't have minutes of the directors meetings and dividend vouchers then it's legally a loan not a dividend isn't it? So the director who just takes money out of the company bank account is actually taking a loan unless they go to the trouble of properly declaring a dividend.

The OP has admitted he has messed up and trying to sort out things retorspectively.

I had a friend who would take a percentage (say 70%) of the money out of the company account throughout the year as director's loans and engage an accountant at the accounting year end and ask them to balance it all up, do all the paperwork, write up the meeting minutes/dividend vouchers etc for them to sign off as director. If they've taken too much then it's an outstanding director's loan and they have to repay it. If they couldn't/wouldn't repay it and it's over £5k they had to pay the interest/declare it as required. It's not my style but they say it's quite legitimate.

Granted it won't seem fudged to the account as long as the OP doesn't screw up when talking to him as you say. Flaws are if it is over 5k or the OP messes it up with the accountant and he gets suspicious. Other assumption is that you have 5k to bang back in to your account quick.

That is presuming that the OP took more money in director's loans than can be repaid or accounted for by declaring a single big dividend at the end of the company's tax year. If the director's loan is not completely paid off by the dividend then the loan will have to be declared and tax on the value of the BIK will have to be paid.

since when has it been illegal to take a DL over £5K????

I don't know since when but the Companies Act 1985 Section 330(2)(a) says: "A company shall not make a loan to a director of the company". Perhaps the law has changed since then or there is some exemption - I didn't read the entire act and I'm not a lawyer...

*(Edit to say that the law did indeed change in the Companies Act 2006 it is now legal if "the transaction has been approved by a resolution of the members of the company")*

My impression was that if there are no shareholders to complain then the "crime" will never be investigated and no action will be taken. In reality, directors of close companies can and do take loans. I think this is more to protect the shareholders of larger companies.

[downsouth]

Not fudged at all, it was a director's loan. Nothing wrong with that, I'll pay it back. (Well, it's actually illegal if it's over £5k

since when has it been illegal to take a DL over £5K????

[northernladuk]

Not fudged at all, it was a director's loan. Nothing wrong with that, I'll pay it back. (Well, it's actually illegal if it's over £5k but that law is to protect shareholders and since the director is the sole shareholder no action is going to be taken)

It is fudged as we know full well it isn't a directors loan. The OP has admitted he has messed up and trying to sort out things retorspectively. Granted it won't seem fudged to the account as long as the OP doesn't screw up when talking to him as you say. Flaws are if it is over 5k or the OP messes it up with the accountant and he gets suspicious. Other assumption is that you have 5k to bang back in to your account quick. I bet if he is in such a mess he doesn't.

Without getting in to the details of a horrible mess Dearnla hit it on the the head. The only thing I would add is be honest with the accountant and ask him to help you in a proper and correct way and then........

Pay the bill. Learn lesson. Set up Wife as Shareholder/Employee next tax year.

[Dearnla]

Pay the bill. Learn lesson. Set up Wife as Shareholder/Employee next tax year.

[Wanderer]

But you accountant would consolidate your figures against your bank statement? No decent accountant would overlook outgoings to a personal account and then take a fudged excuse and action knowing full well in his professional opinion you are pulling a fast one surely?

Not fudged at all, it was a director's loan. Nothing wrong with that, I'll pay it back. (Well, it's actually illegal if it's over £5k but that law is to protect shareholders and since the director is the sole shareholder no action is going to be taken)

I'm sure the original poster worked out what was implied was illegal anyway and aren't encouraging him to do anything, so I don't think your post above this is needed.

Yes, in hindsight you are quite right. I feel all dirty now for even suggesting such wrong things and I hope the original poster would understand that we could never condone this type of tax avoidance.

[SueEllen]

But you accountant would consolidate your figures against your bank statement? No decent accountant would overlook outgoings to a personal account and then take a fudged excuse and action knowing full well in his professional opinion you are pulling a fast one surely?

I would say your analogy was flawed as you don't include the accountant.

There is nothing stopping you moving money around if you haven't spent it all.

[SueEllen]

you beat me to the answer by two minutes.

I'm sure the original poster worked out what was implied was illegal anyway and aren't encouraging him to do anything, so I don't think your post above this is needed.

[northernladuk]

you beat me to the answer by two minutes.



What if you are the sole director and shareholder so there was no one else present at the board meeting to witness you declaring the divided and the minutes/dividend voucher (if any were ever created) quietly disappear.

Was a dividend actually declared? Did the meeting even take place? Perhaps it was a loan all along? If no one outside the company knows that this was supposed to be a dividend then what happens?

Or as an analogy: If a man walking alone in the forest says something and his wife isn't around to hear him, is he still in the wrong?

But you accountant would consolidate your figures against your bank statement? No decent accountant would overlook outgoings to a personal account and then take a fudged excuse and action knowing full well in his professional opinion you are pulling a fast one surely?

I would say your analogy was flawed as you don't include the accountant.

[Wanderer]

you beat me to the answer by two minutes.

I expect this is illegal as you have already declared a dividend.

What if you are the sole director and shareholder so there was no one else present at the board meeting to witness you declaring the divided and the minutes/dividend voucher (if any were ever created) quietly disappear.

Was a dividend actually declared? Did the meeting even take place? Perhaps it was a loan all along? If no one outside the company knows that this was supposed to be a dividend then what happens?

Or as an analogy: If a man walking alone in the forest says something and his wife isn't around to hear him, is he still in the wrong?

[SueEllen]

WSS - you can't do things retrospectively. If only it were legal, you could make out that your dividends to date were not dividends but a large director's loan (which there may be some interest at commercial rate on or BIK taxation due, I wouldn't know). You could then gift your wife shares and then declare a dividend while paying back the director's loan. Unfortunately, I expect this is illegal as you have already declared a dividend. Your accountant is your best bet.

You forgot the joint bank account thing. But then we are talking about things you can't do anyway so it doesn't matter if they have a joint account anyway.