No of shares allocated to dear wife (or husband)?

[TykeMerc]

Thanks, so the issue is not paying a partner a salary, but as a shareholder or as a second director??

Shareholder specifically. Dividends declared are split in equal parts to every share, so if the company has 100 shares held 50/50 by the contractor and spouse and a dividend of £10 per share is declared £500 goes to each person and counts against their annual income.
The point of splitting shareholding to a partner is to exploit their income allowance without going over the higher rate thresholds.

[zamzummim]

Dividends are treated as having already been taxed since the company has already paid CT on the profits they arise from. Since CT is 20% and basic rate tax is 20% and the laws against dual taxation prevent hector taxing the same cash twice, any divi's paid up to the earnings limit for lower rate tax (£~38k iirc) is effectively tax free as long as you fill out the appropriate paperwork when paying them. Anything paid over the tax limit is then due tax on the difference. If your divi takes you 10k over the limit you pay 40% tax less the 20% already paid. I forget the maths of the top of my head but in effect you pay 25% of the amount over the limit as income tax.

Thanks, so the issue is not paying a partner a salary, but as a shareholder or as a second director??

[psychocandy]

http://www.contractoruk.com/s660/

[psychocandy]

Wrong' You just pay yourself enough divis to reach the limit and retain the rest in the company for your warchest.... you are going to pay yourself the minimum you can to get a warchest going aren't you?

Yes. Salary is £7072. Then obviously I'll be paying myself expenses.

I do still need some dividends to live though.

However, I think I see what you're saying though. No point paying yourself a shedload in one tax year and personally accrusing 40% tax.

Better to pay the 20% CT on dividends (up to max) and 20% CT on retained company profits. Then these can be doshed out as dividends in lean spells. (with 20% tax already paid).

However, does the existence of retained profits in this way (or warchest as you call it) prevent the claiming of any type of unemployment benefit in times of no contract? Not that its a great amount though.

[psychocandy]

I agree that MSC has no impact on share proportions, maybe your accountant is thinking about Section 660a...?

No - its me thats wrong. Yes, its section 660a.

[TykeMerc]

I don't understand, please explain more.

Income shifting via dividends isn't worth doing unless the recipient can get most (all ideally) of the dividend income at basic rate tax.
If the spouse is already a higher rate tax payer then there's no advantage and you may as well not have an additional shareholder in the household.

[Taxless]

I agree that with the comments on the (ir)relevance of MSC.

As subscriber shares in a new company you should be able to side step income shifting problems, at least until they change the rules again.

You can split the shares in the proportion that suits, or the company could have two classes of shares from the outset, allowing different dividend rates to be paid on each, to keep you both out of HR tax.

If new income shifting legislation is introduced then you may have an issue but as the UK doesn't do retrospective legislation (yet), you should be able to just stop paying dividends on the spouses shares from the date the legislation changes.

[DaveB]

I don't understand, please explain more.

Dividends are treated as having already been taxed since the company has already paid CT on the profits they arise from. Since CT is 20% and basic rate tax is 20% and the laws against dual taxation prevent hector taxing the same cash twice, any divi's paid up to the earnings limit for lower rate tax (£~38k iirc) is effectively tax free as long as you fill out the appropriate paperwork when paying them. Anything paid over the tax limit is then due tax on the difference. If your divi takes you 10k over the limit you pay 40% tax less the 20% already paid. I forget the maths of the top of my head but in effect you pay 25% of the amount over the limit as income tax.

[zamzummim]

Have looked at this recently, but there is all but zero benefit to us.

The wife earns near the 40% threshold and therefore we would immediately be paying higher rate tax on all but the smallest divi to her.

I don't understand, please explain more.

[Scrag Meister]

Have looked at this recently, but there is all but zero benefit to us.

The wife earns near the 40% threshold and therefore we would immediately be paying higher rate tax on all but the smallest divi to her.

[TykeMerc]

Your accountant would be right if it was a matter of paying her a salary and she did no actual work, but share ownership is a completely different matter.
Being charitable I suspect the accountant has misunderstood, being cynical the accountant is talking total tosh on this and should be ignored or even replaced.

[northernladuk]

I'm going to be well into it. So its going to cost me money.

Wrong' You just pay yourself enough divis to reach the limit and retain the rest in the company for your warchest.... you are going to pay yourself the minimum you can to get a warchest going aren't you?

[Clare@InTouch]

I agree that MSC has no impact on share proportions, maybe your accountant is thinking about Section 660a...?

[Hex]

My accountant reckons 50/50 split is dodgy because of the MSC regulations and has recommended it should be based on amount of actual work done by each shareholder.

As such, hes recommended 75/25 split....

Since my wife is a part-time nurse earning £15K and, me as a contractor, is going to be earning a shedload more, chances are shes still gonna be under upper tac bracket but I'm going to be well into it. So its going to cost me money.

What does everyone else do? Is it best to listen to accountant and not take the p**s just in case?

Your accountant is talking absolute rubbish.

MSC regulations have nothing to do with the share split between a husband and wife and even if they did how is a 75/25 be better than 50/50?
Share proportions have nothing to do with who actually does the work. I bet I have more shares in BT than quite a lot of their employees and I do no work at all for BT!

If it were me I would do it 50/50 or 55/45 or 60/40 or whatever suits you.

[psychocandy]

My accountant reckons 50/50 split is dodgy because of the MSC regulations and has recommended it should be based on amount of actual work done by each shareholder.

As such, hes recommended 75/25 split....

Since my wife is a part-time nurse earning £15K and, me as a contractor, is going to be earning a shedload more, chances are shes still gonna be under upper tac bracket but I'm going to be well into it. So its going to cost me money.

What does everyone else do? Is it best to listen to accountant and not take the p**s just in case?