Reply to: In a fulltime job AND contracting at the same time - tax effiency

[prozak]

This document used to be on the HMRC website whilst it was still S660.

http://www2.accaglobal.com/documents/guide_sba.pdf

They have not as far as I am aware either updated or republished this; but I guess it does give some indication of what HMRC think - or did until Arctic.

Interesting.

But no mention of bank accounts!

[ASB]

Look, there is no decent case law for this, there is no HMRC guidance, just s626 ITTOIA 2005 and our interpretation of it.

This document used to be on the HMRC website whilst it was still S660.

http://www2.accaglobal.com/documents/guide_sba.pdf

They have not as far as I am aware either updated or republished this; but I guess it does give some indication of what HMRC think - or did until Arctic.

[Greg@CapitalCity]

If my wife gets paid from her job into our joint account is this my income?

No, its hers. The Settlement provisions are designed to stop individuals from avoiding tax by artificially moving their income to other family members who are not using up all their available tax allowances (so most commonly here, to pay dividends to the spouse up to the higher rate earnings limit). The scenario you describe above does not apply.

I can't believe it would matter if we first sent the dividends to our own current accounts and then transferred. that is just ludicrous if you ask me.

There is plenty in tax and law that is ludicrous. Look, there is no decent case law for this, there is no HMRC guidance, just s626 ITTOIA 2005 and our interpretation of it. The Settlement provisions are hot, and the HMRC clearly dislike the arrangement which we saw from Arctic. At the end of the day its your business and your decision. Do what works for you, be aware of any risks you may be taking, and then move on.

[psychocandy]

If you are talking about the Patmore case referred to above, if you read the judgement, there is no reference whatsoever to joint bank accounts.

PUMA

No havent read the judgement directly (maybe I will) and am aware that the Telegraph may have gotten it a little wrong.

BTW - my accountants are aware of this they tell me and still say that theres no issue paying into joint account if its two separate payments.

[THEPUMA]

Playing the devils advocate here - not according to the judge in this case.

If you are talking about the Patmore case referred to above, if you read the judgement, there is no reference whatsoever to joint bank accounts.

PUMA

[psychocandy]

Seems a moot point.

If my wife gets paid from her job into our joint account is this my income?

We have an offset morgtgage. All spare cash goes into our join current account and joint savings account. end of.

I can't believe it would matter if we first sent the dividends to our own current accounts and then transferred. that is just ludicrous if you ask me.

Playing the devils advocate here - not according to the judge in this case.

[prozak]

Seems a moot point.

If my wife gets paid from her job into our joint account is this my income?

We have an offset morgtgage. All spare cash goes into our join current account and joint savings account. end of.

I can't believe it would matter if we first sent the dividends to our own current accounts and then transferred. that is just ludicrous if you ask me.

[psychocandy]

While you are right, the commentators at the time said (and still say) the HMRC may have missed a trick there. Take a look at Family businesses face tax crackdown - Telegraph - while the Telegraph isn't my first choice when looking for expert tax opinion, usefully it does echo my view Also take a look at the second to last paragraph here ("Avoid paying dividends into joint accounts at all costs...") Arctic Systems and the settlement provisions :: Freelance UK

I guess the main point is you want to ensure the spousal gift exemption applies by ensuring the gift is an outright gift. s626 ITTOIA 2005 states the gift is not outright (and so the spousal exemption will not apply) if "(b)there are any circumstances in which the property, or any related property—...(ii) is applicable for the benefit of the giver..." - and the prevailing view is paying dividends for a husband and wife into a joint bank account may bring this clause into play. In my view its best to avoid, and ensure a husband/wife company pay dividends into separate bank accounts.

Hmmm. Bit scary what the Telegraph article implies.

I've always paid both dividends into same joint account albeit separate payments. I might open an account for the mrs now and pay into this just in case (although would HMRC be able to check outgoings from this account back into joint account?).

Strangely, my accountants always told me it didnt matter that it all went into joint account but I guess this might change things.

[psychocandy]

Its when you give someone something, but you still enjoy some of the benefits of what you are giving, for yourself. An example would be giving your partner an ipad for Xmas, but you actually end up using it all the time to play Angry Birds. Its a gift, but not really.

Same with shares. Gift them to your wife, pay her dividends, but somehow those dividends help you out in some small way. If your dividends are paid into the same bank account as your wife's dividends, whose to say you don't also get the financial benefit of it. I realise these days plenty of households split costs, but setting up a bank account for your wife is easy, and paying dividends into it is also very easy. This (in my view) is a good defence to the outright gift argument.

Yeh. Fair enough.

But I dont see many cases where a dividend paid to wife could be considered as not helping you out at all.

[Greg@CapitalCity]

Gift of share not outright? What does this mean?

Its when you give someone something, but you still enjoy some of the benefits of what you are giving, for yourself. An example would be giving your partner an ipad for Xmas, but you actually end up using it all the time to play Angry Birds. Its a gift, but not really.

Same with shares. Gift them to your wife, pay her dividends, but somehow those dividends help you out in some small way. If your dividends are paid into the same bank account as your wife's dividends, whose to say you don't also get the financial benefit of it. I realise these days plenty of households split costs, but setting up a bank account for your wife is easy, and paying dividends into it is also very easy. This (in my view) is a good defence to the outright gift argument.

[Greg@CapitalCity]

They spent no time at all contemplating whether or not Mr Jones had benefited from the dividends received by his wife, which they surely would have done, had they considered this relevant, even if the dividends were paid into single accounts.PUMA

While you are right, the commentators at the time said (and still say) the HMRC may have missed a trick there. Take a look at Family businesses face tax crackdown - Telegraph - while the Telegraph isn't my first choice when looking for expert tax opinion, usefully it does echo my view Also take a look at the second to last paragraph here ("Avoid paying dividends into joint accounts at all costs...") Arctic Systems and the settlement provisions :: Freelance UK

I guess the main point is you want to ensure the spousal gift exemption applies by ensuring the gift is an outright gift. s626 ITTOIA 2005 states the gift is not outright (and so the spousal exemption will not apply) if "(b)there are any circumstances in which the property, or any related property—...(ii) is applicable for the benefit of the giver..." - and the prevailing view is paying dividends for a husband and wife into a joint bank account may bring this clause into play. In my view its best to avoid, and ensure a husband/wife company pay dividends into separate bank accounts.

[psychocandy]

Greg

I think you are confusing the legislation in s660(A) (in old money) with the spousal exemption in s660(A)(6).

S660(A) can apply where the donor retains an interest in the property settled. However, there is an automatic assumption in s660(A) that spouses derive a benefit from income paid to each other so that is irrelevant in this case.

The exemption in s660(A)(6) relies on there having been an outright gift of the property (ie the shares) but I think this is a different issue than whether or not any benefit is derived.

When the Arctic Systems case went to the House of Lords, the Lords unanimously agreed that the outright gift was made when Mrs Jones was allowed to subscribe for a share at undervalue. They spent no time at all contemplating whether or not Mr Jones had benefited from the dividends received by his wife, which they surely would have done, had they considered this relevant, even if the dividends were paid into single accounts.

PUMA

Not that I totally understand things but I too was under the impression that Arctic meant that you were pretty much ok if shares were gifted to your spouse and the share class was the same.

[psychocandy]

Yes, you definitely should. If you are deemed to derive a benefit from the dividends paid to your wife, the gift of the share was not outright and the Settlements provisions would apply. How can you show your wife's dividends paid into a joint bank account do not benefit you? Avoid this question in the first instance by paying your wife's dividends into her own personal bank account.

Gift of share not outright? What does this mean?

Like I said, I did consider paying wifes dividends into separate account (and then transferring anyway) but accountant said no need. Interesting to see a different viewpoint here.

[THEPUMA]

Yes, you definitely should. If you are deemed to derive a benefit from the dividends paid to your wife, the gift of the share was not outright and the Settlements provisions would apply. How can you show your wife's dividends paid into a joint bank account do not benefit you? Avoid this question in the first instance by paying your wife's dividends into her own personal bank account.

Greg

I think you are confusing the legislation in s660(A) (in old money) with the spousal exemption in s660(A)(6).

S660(A) can apply where the donor retains an interest in the property settled. However, there is an automatic assumption in s660(A) that spouses derive a benefit from income paid to each other so that is irrelevant in this case.

The exemption in s660(A)(6) relies on there having been an outright gift of the property (ie the shares) but I think this is a different issue than whether or not any benefit is derived.

When the Arctic Systems case went to the House of Lords, the Lords unanimously agreed that the outright gift was made when Mrs Jones was allowed to subscribe for a share at undervalue. They spent no time at all contemplating whether or not Mr Jones had benefited from the dividends received by his wife, which they surely would have done, had they considered this relevant, even if the dividends were paid into single accounts.

PUMA

[Greg@CapitalCity]

I did open a separate current account for the Mrs though. Maybe I should start paying into this instead?

Yes, you definitely should. If you are deemed to derive a benefit from the dividends paid to your wife, the gift of the share was not outright and the Settlements provisions would apply. How can you show your wife's dividends paid into a joint bank account do not benefit you? Avoid this question in the first instance by paying your wife's dividends into her own personal bank account.