Reply to: 1st time contracting - help please

[Wanderer]

I thought that NI was per employment per year, not cumulative.

It sounds counter intuitive but actually I think you are right. I will check that one out....

[TheFaQQer]

If she is already using up most of her £7488 tax free allowance then do not pay her a salary or your company will get hit for PAYE + Employers NI + Employee's NI. It's better to take the money as a dividend and keep things simple.

I thought that NI was per employment per year, not cumulative.

[psychocandy]

I am not a big fan of this splitting even though there is no reason not to do it but I would be avoiding paying money in to shared accounts like the plague. Personal choice I guess and I can't back it up but that is just my feeling.

But NLUK as you always say - speak to your accountant.

I think you'll find that most will say that splitting is OK and that there is no need for separate accounts as long as payment is separate.

[northernladuk]

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Bear in mind that with a 60:40 share split, dividends would be paid 60% to you and 40% to the other share holder. So a £1,000 dividend would pay you £600 and your wife £400. Technically it's her money but there is nothing to stop you paying it into a joint bank account. Just be aware if you are a "his" and "hers" kind of couple...

I am not a big fan of this splitting even though there is no reason not to do it but I would be avoiding paying money in to shared accounts like the plague. Personal choice I guess and I can't back it up but that is just my feeling.

[network]

Thanks guyz

[Wanderer]

Also i have included my spouse as a director in the company because an accountant asked me to do so. so i made it as 60:40 - is this fine. but by the looks of it because i am not on a high paid cntract rate, the dividends and salary itself will be enough i think without even including her - so can i reduce her percentage or even remove her from the company - so that hmrc dont eye me !!

If your company income minus expenses and the £7488 salary are going to be less than £31,000 or thereabouts then there is probably no tax advantage to income splitting because you won't be a higher rate tax payer. You may want to ask your accountant if you should hold all the shares yourself as this keeps your wife's tax affairs much simpler too.

The edge case is that your business goes very well and you land a lucrative contract which would put your dividends into the higher rate bracket. You would then have to re-issue the shares to your wife to split the dividends and this may be a little bit messy if it's not planned in advance.

In the unlikely event that HMRC successfully challenged the income splitting arrangement (a hypothetical statement because they can't - see Arctic Systems) the income would be taxed on you but because you are not a higher rate tax payer there would be no further income due so the income splitting would cause no loss to HMRC. There is nothing to fear from income splitting - most likely the challenge would be via an IR35 investigation.

Bear in mind that with a 60:40 share split, dividends would be paid 60% to you and 40% to the other share holder. So a £1,000 dividend would pay you £600 and your wife £400. Technically it's her money but there is nothing to stop you paying it into a joint bank account. Just be aware if you are a "his" and "hers" kind of couple...

what if she does some part time work - still her earning will be just under the £7000 scale for this tax year

If she is already using up most of her £7488 tax free allowance then do not pay her a salary or your company will get hit for PAYE + Employers NI + Employee's NI. It's better to take the money as a dividend and keep things simple.

[northernladuk]

right artic system cases is bit scary but i am sure many people would be spilitting the income between husband and wife. just that if anyone can advice be if the ration of 60:40 is ok or do i have to reduce the ratio ?

You can do whatever you want, it is your business. The accountants all seem to have a different opinion of this. Some say 50/50 is fine, others say 60/40, 75/25 etc to show some split of responsibilities, some say don't do it at all to avoid attention and in case you split up. We have more than enough post on here of company splits being a problem when they split up.

There are two things you cannot do though.. One is to keep changing it depending on your wife's circumstances and the other is waiving dividends. You have to pay the amount of the split, even if it puts your wife over the threshold. You cannot chose not to give her a dividend one month cause you fancy it. Before anyone shouts technically you can but may attract a lot more attention. You are obviously using the system to avoid tax if you do that.

From what I read in the history the contract isn't the best paid so would ask do you even need to do this? You can take around £40k a year and leave some in the business for a warchest. Remember it is essential you build up about 6 months worth of spare cash in the business just in case you don't find end to end contracts. This is very common and breaks of 4-6 months are very common. You need to budget that you will work about 10 months a year. There is a thread running at the moment where someone has only managed 8 months a year for the last 3 years and now can't pay his mortgage and has spent his CT and VAT money so is in a hell a lot of trouble. Don't take your warchest lightly.

Doing the numbers do you really need your wife as a shareholder...

Oh and...

You really need to start searching, you have seen the frustration this basic level of questions raise and we have argued what to split for your wife endlessly over the years.

Use the search as already pointed out to you and look for 'wife shares' and you will get pages of exactly the same question. You run a business now, you need to start doing your own research.

[psychocandy]

right artic system cases is bit scary but i am sure many people would be spilitting the income between husband and wife. just that if anyone can advice be if the ration of 60:40 is ok or do i have to reduce the ratio ?

network. There are people on here who aren't going to be as nice as me but, in simple terms,

1. Speak to your accountant and get his advice and reasons behind it. After all you are paying them to be the experts.

2. If you don't understand, ask accountant to explain.

3. If you like, read up about income splitting. Read the Arctic case and HMRC response etc. Search these forums.

4. No-one can give you exact advice on whether 60:40 is right for you.

[network]

right artic system cases is bit scary but i am sure many people would be spilitting the income between husband and wife. just that if anyone can advice be if the ration of 60:40 is ok or do i have to reduce the ratio ?

[psychocandy]

Thanks again. just a quick question - so i can have my spouse as a share holder witha percentage 60:40 (60 myself and 40 spouse) - this should not be a problem with hmrc, isnt it ? the problem will start only when i pay her isnt it ?

You can do share split whatever you want. Mine is 50/50 for instance.

But you really need to do some research into this and speak to your accountant as well....

Have a look at income shifting, arctic systems case etc. S660A(?)

[Notascooby]

could you please provide me the links or let me know what to search for pls ? pretty new to contracting and this forum so any help appreciated

Search for Arctic / income shifting s660 or just go Section 660 - S660 / S660a Advice :: Husband and Wife Tax :: Income Shifting Legislation

[network]

could you please provide me the links or let me know what to search for pls ? pretty new to contracting and this forum so any help appreciated

[Notascooby]

Thanks again. just a quick question - so i can have my spouse as a share holder witha percentage 60:40 (60 myself and 40 spouse) - this should not be a problem with hmrc, isnt it ? the problem will start only when i pay her isnt it ?

ppffft pfffttt must resist... please do some reading.

[network]

Thanks again. just a quick question - so i can have my spouse as a share holder witha percentage 60:40 (60 myself and 40 spouse) - this should not be a problem with hmrc, isnt it ? the problem will start only when i pay her isnt it ?

[psychocandy]

When you are starting out is the time when you need someone to take that responsibility, surely? You need someone to make sure that everything that you are doing is above board and correct.

Granted that doesn't appear to happen in this case, but still - if there is work being done, and someone is doing that work, then there is a reasonable expectation to be paid for it. If you brought in someone from outside the family to do the admin work, make sure that the contracts are looking good, chasing payments, ensuring that the company is registered for everything it should be, booking travel and accommodation as necessary, arranging insurance etc. then would you expect them to do it for free? Absolutely not, so why should there be any expectation that just because you are married to that person and they aren't working anywhere else that they should do it for free?

Oh, and once you start paying someone to do some work, it ceases to be a one-man band

But then if you got someone in from outside you wouldn't pay them £7K a year either. Especially when chances are you pay your accountant about £1500 a year....

I think you will find that 'most' accountants will tell you to not bother with this but instead make the mrs a shareholder and split dividends.