Reply to: Income shifting - Is this still a problem?

[psychocandy]

Some people would lose their house if they lost a S660a or IR35 investigation. Perhaps the risk is low (or even non existent) but some people don't want to take that risk so they take out insurance to cover it. It also means that you have professional representation if you get investigated, if you deal with HMRC yourself then you could easily say/do the wrong thing and get in a load of trouble.

Hmm. I guess the risk is low for S660a but I can see the point.

[Wanderer]

OK. So income shifting in this way has not yet been legislated against and in fact HMRC were defeated in the Arctic case. So why do people like qdos sell 660a insurance?

Some people would lose their house if they lost a S660a or IR35 investigation. Perhaps the risk is low (or even non existent) but some people don't want to take that risk so they take out insurance to cover it. It also means that you have professional representation if you get investigated, if you deal with HMRC yourself then you could easily say/do the wrong thing and get in a load of trouble.

[Danielsjdaccountancy]

Unfortuantely you are learning all this by reading text from people with different opinions on a matter that is grey at best. You need to understand the whole concept of why the rules exist, who they really apply to and how we use it to suit our needs. That won't come from just asking questions, it needs level of business understanding. Even with that the answer isn't black and white.

I will stand by what I say that we use loopholes. Maybe that is the wrong word but we use a system that wasn't really designed for us and so much of it comes down to opinion or individual circumstances, something law and regulation struggles with. The gove is constantly reviewing income shifting and IR35 so they are obviously not happy. HMRC are constant taking people to court because in their eyes it is also wrong.

If things as small as moving divis in to your wife/joint account or paying 70/30 split is ok but her moving it back to you or paying 50/50 is not it shows how close to the line we work it. At the bottom line ask the question why do we give divis to our partners? In a large majority of, or even all cases it is to avoid paying extra tax. That in itself is wrong from the HMRC but we assume it is our god given right just because we own a LTD. We talk about paying our partners 7k for work in the business when in reality there is no way in hell they are doing 7k's of work and so on. Yes we think we can justify it and think we are right but think about how this looks from HMRC.

Much of this is also open to some interpretation and as in life we interprate it to suit our needs which mean we have a battle royal once we get investigated. The insurance is there because we have made a market for it by operating these schemes. If the law was black and white, there was no interpretation and we followed the spirit not the word it would not be required.

Maybe it sounds more like I work for HMRC and I am putting an unfair spin on it but I am trying to put the other side of the argument to help you understand.

All that said I am happy to use the rules to suit me where I feel I can justify it. I do have a share set up for my other director but it is much much smaller than mine but I do not pay the full 7K a year because I feel I cannot fully justify it.

It's far too complex to explain in one post and these are my opinions but hope it helps.

Here, Here - Opinion is exactly what it is, its the key word for the whole of IR35.

[northernladuk]

Accountants are people.

I would love to comment here but my account is posting in this thread so I think it would be wise to agree and post a simlie..

I agree

[SueEllen]

Yes, fair do. I'm finding out that a lot is pretty grey... and that even opinions from accountants can vary.

Accountants are people.

[northernladuk]

Hmmm. Interesting thought about share split.

While I can kind of see the point of this, its akin to saying dont pay yourself a low wage and take the rest as divis. Instead, pay yourself, say, roughly 70% of your co's rate and take the rest as divis so HMRC many pass you over for easier iR35 targets as you have thought about the implications.

But where that might be a safer bet and proper use of the system but it isn't as tax efficient so we don't want to do it.

[BolshieBastard]

Great thread and a hot topic amongst accountants also.

Agreed there is no law in place to stop income shifting and the longer it goes on the less doubt there is of it being introduced. However, HMRC are not fans of income shifting and never will be so we must hold this caution.

Having spoken to tax advisors used by PCG they would happily tell you that forming a company with 2 shares 1:1 ratio is an sign to the revenue of a possible husband:wife arrangement and is not recommended.

I advise that you take some consideration in assigning your shares split and have the contractor as a main beneficiary of dividends, after all he is doing all the work, so perhaps a 70:30 split is better. This shows to HMRC that you have thought about your share split and it is less obvious to them than the standard 2 shares.

Hmmm. Interesting thought about share split.

While I can kind of see the point of this, its akin to saying dont pay yourself a low wage and take the rest as divis. Instead, pay yourself, say, roughly 70% of your co's rate and take the rest as divis so HMRC many pass you over for easier iR35 targets as you have thought about the implications.

Just got word back from my accountant about the income shifting separate bank account issue and he says we'll discuss this, with the practice tax & IR35 specialist when we go in to discuss the accounts.

[psychocandy]

Unfortuantely you are learning all this by reading text from people with different opinions on a matter that is grey at best. You need to understand the whole concept of why the rules exist, who they really apply to and how we use it to suit our needs. That won't come from just asking questions, it needs level of business understanding. Even with that the answer isn't black and white.

I will stand by what I say that we use loopholes. Maybe that is the wrong word but we use a system that wasn't really designed for us and so much of it comes down to opinion or individual circumstances, something law and regulation struggles with. The gove is constantly reviewing income shifting and IR35 so they are obviously not happy. HMRC are constant taking people to court because in their eyes it is also wrong.

If things as small as moving divis in to your wife/joint account or paying 70/30 split is ok but her moving it back to you or paying 50/50 is not it shows how close to the line we work it. At the bottom line ask the question why do we give divis to our partners? In a large majority of, or even all cases it is to avoid paying extra tax. That in itself is wrong from the HMRC but we assume it is our god given right just because we own a LTD. We talk about paying our partners 7k for work in the business when in reality there is no way in hell they are doing 7k's of work and so on. Yes we think we can justify it and think we are right but think about how this looks from HMRC.

Much of this is also open to some interpretation and as in life we interprate it to suit our needs which mean we have a battle royal once we get investigated. The insurance is there because we have made a market for it by operating these schemes. If the law was black and white, there was no interpretation and we followed the spirit not the word it would not be required.

Maybe it sounds more like I work for HMRC and I am putting an unfair spin on it but I am trying to put the other side of the argument to help you understand.

All that said I am happy to use the rules to suit me where I feel I can justify it. I do have a share set up for my other director but it is much much smaller than mine but I do not pay the full 7K a year because I feel I cannot fully justify it.

It's far too complex to explain in one post and these are my opinions but hope it helps.

Yes, fair do. I'm finding out that a lot is pretty grey... and that even opinions from accountants can vary.

Yes, it is true to say that we the tax laws to their best advantage and that sometimes HMRC dont see that as fair.

I see what you're saying though. Personally, I'd say the risk of being caught by IR35 is greater than being caught by 660A because at least the legislation is in place for this!

[northernladuk]

Bit confused probably cos I'm dull....

OK. So income shifting in this way has not yet been legislated against and in fact HMRC were defeated in the Arctic case.

So why do people like qdos sell 660a insurance?

Unfortuantely you are learning all this by reading text from people with different opinions on a matter that is grey at best. You need to understand the whole concept of why the rules exist, who they really apply to and how we use it to suit our needs. That won't come from just asking questions, it needs level of business understanding. Even with that the answer isn't black and white.

I will stand by what I say that we use loopholes. Maybe that is the wrong word but we use a system that wasn't really designed for us and so much of it comes down to opinion or individual circumstances, something law and regulation struggles with. The gove is constantly reviewing income shifting and IR35 so they are obviously not happy. HMRC are constant taking people to court because in their eyes it is also wrong.

If things as small as moving divis in to your wife/joint account or paying 70/30 split is ok but her moving it back to you or paying 50/50 is not it shows how close to the line we work it. At the bottom line ask the question why do we give divis to our partners? In a large majority of, or even all cases it is to avoid paying extra tax. That in itself is wrong from the HMRC but we assume it is our god given right just because we own a LTD. We talk about paying our partners 7k for work in the business when in reality there is no way in hell they are doing 7k's of work and so on. Yes we think we can justify it and think we are right but think about how this looks from HMRC.

Much of this is also open to some interpretation and as in life we interprate it to suit our needs which mean we have a battle royal once we get investigated. The insurance is there because we have made a market for it by operating these schemes. If the law was black and white, there was no interpretation and we followed the spirit not the word it would not be required.

Maybe it sounds more like I work for HMRC and I am putting an unfair spin on it but I am trying to put the other side of the argument to help you understand.

All that said I am happy to use the rules to suit me where I feel I can justify it. I do have a share set up for my other director but it is much much smaller than mine but I do not pay the full 7K a year because I feel I cannot fully justify it.

It's far too complex to explain in one post and these are my opinions but hope it helps.

[psychocandy]

Bit confused probably cos I'm dull....

OK. So income shifting in this way has not yet been legislated against and in fact HMRC were defeated in the Arctic case.

So why do people like qdos sell 660a insurance?

[Danielsjdaccountancy]

Great thread and a hot topic amongst accountants also.

Agreed there is no law in place to stop income shifting and the longer it goes on the less doubt there is of it being introduced. However, HMRC are not fans of income shifting and never will be so we must hold this caution.

Having spoken to tax advisors used by PCG they would happily tell you that forming a company with 2 shares 1:1 ratio is an sign to the revenue of a possible husband:wife arrangement and is not recommended.

I advise that you take some consideration in assigning your shares split and have the contractor as a main beneficiary of dividends, after all he is doing all the work, so perhaps a 70:30 split is better. This shows to HMRC that you have thought about your share split and it is less obvious to them than the standard 2 shares.

[Pondlife]

Fair point. After all the HMRC dont come after you just because your Mrs gets paid into a joint bank account?

In fact, is there any reason why the Mrs couldnt get paid into an account in someones elses name? Employers unlikely to give a toss. And I cant see HMRC saying its your income cos its gone into your account.

Really, You can't see them saying that it's just a paper exercise and that the money was paid to you since it went directly to you.

I'm not suggesting for a moment they would win if the paperwork was in order but to be so naive as to think they wouldn't argue it is a bit

[psychocandy]

It's very interesting to follow this debate on where the dividend money should end up. My opinion is that it's irrelevant whether the money goes into your spouse's personal account or a joint account. The money can in fact go into whichever account the shareholder nominates.

What is important in my view and what also counts for tax purposes is the dividend declaration and voucher. This supports the dividend payment. Ultimately, if the dividend is declared to your spouse, it is taxable as their income regardless of if it goes into a joint account or not.

Fair point. After all the HMRC dont come after you just because your Mrs gets paid into a joint bank account?

In fact, is there any reason why the Mrs couldnt get paid into an account in someones elses name? Employers unlikely to give a toss. And I cant see HMRC saying its your income cos its gone into your account.

[Craig@Clarity]

It's very interesting to follow this debate on where the dividend money should end up. My opinion is that it's irrelevant whether the money goes into your spouse's personal account or a joint account. The money can in fact go into whichever account the shareholder nominates.

What is important in my view and what also counts for tax purposes is the dividend declaration and voucher. This supports the dividend payment. Ultimately, if the dividend is declared to your spouse, it is taxable as their income regardless of if it goes into a joint account or not.

[psychocandy]

How do think they investigate tax evasion etc etc. They are interested in your companies tax carry ons as well as your personal ones as well remember. They don't have access to it but if they investigate you on suspicion of anything you have to prove you aren't being naughty.



You are absolutely right it is full of holes, am just playing devils advocate and again a question to answer your question. Why do you give your wife dividends? To avoid paying the higher rate of tax. Do you think hector is happy with this and he designed the system to let us do this.

There is a huge debate to be had I agree but still for me if I can keep it black and white then do what you can and be very aware of your actions. Giving your wive 6k and she transfers it straight to you could have very different consequences to giving her the money and it going in to a joint account. The tiny details can make all the difference I think.

Yeh. Maybe transferrring from her personal account to yours looks dodgy but transferring back to joint account doesnt? Is that what you're saying?

Surely if money is going personal bank account and then she sticks it in joint account, its still her account and the dosh can be accessed/spent by here... It might be easier for instance to access it in this way for the lady in question.

I can see if its transferred into account straight away for which she no longer has access then it dont look good.

Personally, I plan to open a sole account for the mrs and get the dosh paid into there. Then she'll (hopefully) stick it into our joint account where all the bills etc get paid from.