Reply to: First Contract - Various Questions

[Craig@Clarity]

There are so many ways around this it's unreal. I don't see how the different accounts idea holds much water to be honest.

What if my wife decides to put the money she receives straight into our joint account to offset the mortgage? What if I got the wife to open an account and then give me the debit card and pin number so I could use it? What if my wife uses the money to pay for the weekly shop or a family holiday? And at what point does the dividend stop being "hers" and become "ours"?

The more I think about it the more bizarre it sounds.

In my opinion, I agree. As I said before, it doesn't matter which account it goes into. Paying dividends to the wife who holds the same class and type of share as the husband (or vice versa!) is exempt from what was formerly s660 and so income shifting doesn't apply. Therefore, if income shifting doesn't apply, neither does it apply if it is paid into a joint account.

[Wanderer]

Wife as a shareholder is fine. Arctic Systems made that clear. The issue is ensuring that any money paid to the wife in Dividends cannot be reasonably said to have been transferred back into your possession afterwards.

There are so many ways around this it's unreal. I don't see how the different accounts idea holds much water to be honest.

What if my wife decides to put the money she receives straight into our joint account to offset the mortgage? What if I got the wife to open an account and then give me the debit card and pin number so I could use it? What if my wife uses the money to pay for the weekly shop or a family holiday? And at what point does the dividend stop being "hers" and become "ours"?

The more I think about it the more bizarre it sounds.

[DaveB]

So having my wife as shareholder is not a good idea ? I'm new to all this so done this on the advice of several accountants ?

Wife as a shareholder is fine. Arctic Systems made that clear. The issue is ensuring that any money paid to the wife in Dividends cannot be reasonably said to have been transferred back into your possession afterwards.

Without arguing the small print back and forth. Basically make sure that any money paid you your wife or partner in divi's is paid to her own account and not used to pay for things in your name.

Just to be clear. I am not an accountant and I am simply relaying advice I was given in the past that made sense to me at the time.

[Fred Bloggs]

So having my wife as shareholder is not a good idea ? I'm new to all this so done this on the advice of several accountants ?

HMRC would love to challenge you very much for having the wife as a share holder, but after Acrtic Systems it is very doubtful IMO that they can, not without a change in the law.

[bold]

The advice I was given was that it could be seen that way should Hector ever decide to carry out an investigation. It's not as clear as if your other half transferred the money directly to you but it could still be an issue.

So having my wife as shareholder is not a good idea ? I'm new to all this so done this on the advice of several accountants ?

[DaveB]

So if either of you move dividend money (all or some of it) , which was originally paid into your personal bank accounts, to the joint account which is used to pay joint household bills then it's tax evasion?

The advice I was given was that it could be seen that way should Hector ever decide to carry out an investigation. It's not as clear as if your other half transferred the money directly to you but it could still be an issue.

[SueEllen]

In which case Hector would see it the same way. It is not your money, it is hers as a shareholder in your Ltd Co. If she then transfers divi payments to you then it could be seen as tax evasion.

So if either of you move dividend money (all or some of it) , which was originally paid into your personal bank accounts, to the joint account which is used to pay joint household bills then it's tax evasion?

[northernladuk]

In which case Hector would see it the same way. It is not your money, it is hers as a shareholder in your Ltd Co. If she then transfers divi payments to you then it could be seen as tax evasion.

Or blatently pays things in the OP's name like the post we had a while ago. The guy divis the money to his live in girlfriend who then paid his rent, car insurance etc for things in his name not hers. Not as black and white as moving money but still waves a big red flag.

[DaveB]

This is completely artificial as if the personal account your wife has is with the same bank as the joint account, there is nothing stopping her moving the money over to the joint account as soon as she receives the dividends.

All this money moving from business account to wife's personal bank account to joint account could take about 6 hours with internet banking.

In which case Hector would see it the same way. It is not your money, it is hers as a shareholder in your Ltd Co. If she then transfers divi payments to you then it could be seen as tax evasion.

[bold]

This is completely artificial as if the personal account your wife has is with the same bank as the joint account, there is nothing stopping her moving the money over to the joint account as soon as she receives the dividends.

All this money moving from business account to wife's personal bank account to joint account could take about 6 hours with internet banking.

This will be the case for me, we have joint and her own with same bank, moving between accounts is instant, I will pay into her own account I guess, Once shoes, handbags Facials and other treatments are deducted the rest will be transfered into joint WIFE TAX !!

[SueEllen]

I've been advised the same as DaveB

I can't remember the case in question, but I was told that in one income splitting investigation a few years ago, HMRC used this argument. Paying it into an account that only she has access to prevents this.

This is completely artificial as if the personal account your wife has is with the same bank as the joint account, there is nothing stopping her moving the money over to the joint account as soon as she receives the dividends.

All this money moving from business account to wife's personal bank account to joint account could take about 6 hours with internet banking.

[blacjac]

I've been advised the same as DaveB

I can't remember the case in question, but I was told that in one income splitting investigation a few years ago, HMRC used this argument. Paying it into an account that only she has access to prevents this.

[DaveB]

It might have been pre-Arctic days perhaps. Have a look at this link http://www.legislation.gov.uk/ukpga/2005/5/section/626 Provided the conditions are met in the link, I don't think it's an issue paying into a joint account as any income the wife receives is taxable under her income. If you do speak to your advisor again on this issue, ask what the tax consequence would be. Probably nothing I suspect.

I think the issue was that as my other half doesnt work she would pay no tax on the dividends as the total would not take her into the upper tax bracket over the course of the year. If it had been paid soley to me I would have gone into the upper bracket and paid tax on the surplus. By paying the divi to her and then having access to the money via the joint account I was effectivly getting all the dividends but paying no tax on them despite having an income effectivly over the upper limit.

This was pre Arctic though as you say, and it was a moot point anyway as we dont have a joint account.

[Craig@Clarity]

This was a few years ago now so memory is hazy but it was along the lines of Hector taking a view that since the money was available to me via the joint account the share distribution was a purely artifical means to avoid paying tax and would try to claim it was evasion.

It might have been pre-Arctic days perhaps. Have a look at this link http://www.legislation.gov.uk/ukpga/2005/5/section/626 Provided the conditions are met in the link, I don't think it's an issue paying into a joint account as any income the wife receives is taxable under her income. If you do speak to your advisor again on this issue, ask what the tax consequence would be. Probably nothing I suspect.

[DaveB]

Out of interest, what did your advisor say would be the consequence if that happened?

This was a few years ago now so memory is hazy but it was along the lines of Hector taking a view that since the money was available to me via the joint account the share distribution was a purely artifical means to avoid paying tax and would try to claim it was evasion.