Higher tax band cos of bonus

[Greg@CapitalCity]

Oh I see. Looks like you are probably stuck with the dividend then. I assume you paid yourself a dividend as well of £16,000 in line with the share split? It would then be very hard for you to convince the HMRC that the payment of £4,000 to your wife was anything but a dividend then.....

[ltdcom]

So you made a payment to your wife when she was not a shareholder? In which case it can't have been a dividend - which then begs the question what was it. A salary payment....which would need to be taxed etc, or a loan, which could be repaid.

Ok, just want to clarify this, When I opened company in June 2011, I opened with 1 share and allocated to me. Then I decided to give dividend to my wife and hence increased share amount to 100 and did share split (80:20). My accountant says we only need to declare share split via SH01 when we file return in June 2012(company year end).

Please let me know if there is any thing not right so I can get accountant to sort this out...

[Greg@CapitalCity]

So you made a payment to your wife when she was not a shareholder? In which case it can't have been a dividend - which then begs the question what was it. A salary payment....which would need to be taxed etc, or a loan, which could be repaid.

If you do end up paying a dividend to her, that puts her over the higher rate earnings threshold, she must register herself for self-assessment. Chances are the HMRC will not pick up on their loss of tax take otherwise. Remember personal tax is called self-assessment for a reason - its the responsibility of your wife to know that she needs to pay tax on those dividends, and these days the 'I didn't know I had to' excuse holds no water with the HMRC.

[ltdcom]

This is sometimes what can happen, you can never get the split exactly right but mainly you can save.

There is another thread related to this in that the poster is considering a change of the shareholding, this is something that we would advise against.

If you are looking to change the shareholdings in the company between yourself and your spouse more than once then you may run into problems if you were to ever be investigated by HMRC as the spousal gift exemption may not apply.

HMRC may try and argue the shares that are being transferred are indeed a right to income because there is the expectation to receive the dividends if the underlying reasoning behind the transfer to ensure one or both shareholder(s) are to remain basic rate tax payer(s).

Alan

Ok thanks for all the replies.

Couple of things, this is my first year only; hence I have never declared the share allocations/split. So the SH01 form is just kept ready with me and can be changed. Same applies to stock transfer form.

So I can still pay back 4k to company and declare dividends accordingly. And change share split. (I understand I need to act before 5th April)

So is it ok to pay back 4k to company???

OR Can I go for Option 2, forget about all this and not change anything, if HMRC finds out then they will charge my wife (change tax code next year) or HMRC will never calculate and all good...

[Scrag Meister]

If it's a dividend it will be taxed at 32.5% of the gross, less the 10% tax credit, so 22.5%. Which works out to 25% of the net. Or £1,000

So more left in your own pocket for whatever type of night out you want!

WCS.

[JamJarST]

Shirely that's the obvious option - but must admit - screwed is hardly what you'd call being 3K richer than you expected!

I wish I suddenly found myself with 4K of cash I didn't expect

Spot on! "Oh dear I earned too much"

[Notascooby]

WRT avoiding the higher tax bracket, yes - you're screwed.

If there were a way to, say, i dunno make the dividend paperwork disappear somehow and be replaced by some paperwork to do something with a directors loan, then pay the "directors loan" back.

Shirely that's the obvious option - but must admit - screwed is hardly what you'd call being 3K richer than you expected!

I wish I suddenly found myself with 4K of cash I didn't expect

[Clare@InTouch]

40% of £4K is £1600. That's an all night session with a call girl! Ok... so maybe not quite as screwed as one might have expected

If it's a dividend it will be taxed at 32.5% of the gross, less the 10% tax credit, so 22.5%. Which works out to 25% of the net. Or £1,000

So more left in your own pocket for whatever type of night out you want!

[kingcook]

Screwed is a bit of a strong term though isn't it?? Yes you will have to pay higher rate tax on the £4k but you have still avoided tax on the other earnings.

40% of £4K is £1600. That's an all night session with a call girl! Ok... so maybe not quite as screwed as one might have expected

[JamJarST]

Screwed is a bit of a strong term though isn't it?? Yes you will have to pay higher rate tax on the £4k but you have still avoided tax on the other earnings.

[kingcook]

I paid just enough dividend amount from ltd company to my wife to keep her under higher rate tax band.

Now she got bonus of 4k from her main job in march.

So what will happen now, is she in higher rate tax band and how will she pay or how will HMRC find this out?
Are we screwed???

Also we did share split according to her original dividend calculations. (80:20)

WRT avoiding the higher tax bracket, yes - you're screwed.

If there were a way to, say, i dunno make the dividend paperwork disappear somehow and be replaced by some paperwork to do something with a directors loan, then pay the "directors loan" back.

[Nixon Williams]

I paid just enough dividend amount from ltd company to my wife to keep her under higher rate tax band.

Now she got bonus of 4k from her main job in march.

So what will happen now, is she in higher rate tax band and how will she pay or how will HMRC find this out?
Are we screwed???

Also we did share split according to her original dividend calculations. (80:20)

This is sometimes what can happen, you can never get the split exactly right but mainly you can save.

There is another thread related to this in that the poster is considering a change of the shareholding, this is something that we would advise against.

If you are looking to change the shareholdings in the company between yourself and your spouse more than once then you may run into problems if you were to ever be investigated by HMRC as the spousal gift exemption may not apply.

HMRC may try and argue the shares that are being transferred are indeed a right to income because there is the expectation to receive the dividends if the underlying reasoning behind the transfer to ensure one or both shareholder(s) are to remain basic rate tax payer(s).

Alan

[Clare@InTouch]

If she's got to tax to pay then she needs to inform HMRC, and ask them to send her a tax return. Assuming she's £4,000 into higher rates then you can expect a tax bill of £1,000.

[ltdcom]

I paid just enough dividend amount from ltd company to my wife to keep her under higher rate tax band.

Now she got bonus of 4k from her main job in march.

So what will happen now, is she in higher rate tax band and how will she pay or how will HMRC find this out?
Are we screwed???

Also we did share split according to her original dividend calculations. (80:20)