Reply to: Divi-waiver / s660

[SailorSam]

No one has mentioned the ir35 escape clause. Take the IR35 contract income and pay it directly into his pension fund and use wifey's contract dividends to live on.

That would work for us. As someone posted, ir35 becomes a problem when its long term and if it carries on for a long time we'd end up tying more into a pension than we would like.

Neither us nor our accountant are keen on the waiver idea so we won't do it, but its been useful to explore ideas with the forum.

[eek]

Nah, they're looking to avoid paying some tax (well, NICs to be precise), not working out how not to pay any...

You see that is the problem. IR35 is only a problem if you end up subject to it for a long period of time. For a 3-6 month contract being under IR35 really isn't that big a problem if you have savings, you just put the money into a different pot.

[malvolio]

No one has mentioned the ir35 escape clause. Take the IR35 contract income and pay it directly into his pension fund and use wifey's contract dividends to live on.

Nah, they're looking to avoid paying some tax (well, NICs to be precise), not working out how not to pay any...

[eek]

Doesn't change the point that waiver to avoid tax isn't a good idea.

No one has mentioned the ir35 escape clause. Take the IR35 contract income and pay it directly into his pension fund and use wifey's contract dividends to live on.

[northernladuk]

If we really wanted to dodge tax we'd declare husband outside ir35, buy the insurance and sit back. Something tells me we wouldn't be the first people to do that....

Doesn't change the point that waiver to avoid tax isn't a good idea.

[northernladuk]

KUATB lad

Good point. I will take that one.

[Wanderer]

Both are fee earners, his contract is inside IR35 and hers is not.

So you are inside IR35?

KUATB lad

[northernladuk]

If we really wanted to dodge tax we'd declare husband outside ir35, buy the insurance and sit back. Something tells me we wouldn't be the first people to do that....

So you are inside IR35?

[SailorSam]

Thanks for your reply Wanderer.

We would be happy to keep the divi small enough that it is never more than 50%. I got lost reading the detail of the Buck case which is why I turned to this forum. But my basic understanding of the case was that MrB earnt the money and Mrs B benefitted which is not the same in our case.

[SailorSam]

So the answer is to risk an investigation by mis-applying the rules?

If people weren't quite do so paranoid about paying legitimately owed taxes, lilfe would be so much easier...

If we really wanted to dodge tax we'd declare husband outside ir35, buy the insurance and sit back. Something tells me we wouldn't be the first people to do that....

[Wanderer]

So the answer is to risk an investigation by mis-applying the rules?
If people weren't quite do so paranoid about paying legitimately owed taxes, lilfe would be so much easier...

Pffft. Discussing legal ways to minimise your tax liability through Generally Accepted Accounting Practice is not a crime.

[Wanderer]

Can the company pay a dividend to the wife only?

No, but what the company can do is declare a dividend payable to all shareholders and the husband can waive his right to a dividend.

That sounds pedantic but there is an important point here. Imagine the company has reserves of exactly £10k and two shareholders with an equal number of shares in the same class. My understanding is that the company can only declare a dividend of £5k to each shareholder because that is the total value of the reserves in the company. One shareholder can take the £5k dividend and the other can waive their right to it but that means the company can only pay out £5k and it must keep the other £5k!

The company can't pay a £10k dividend to one shareholder and nothing to the other shareholder (due to a waiver) because the company doesn't have £20k in reserves to declare as a dividend. So using waivers, technically the most a company with 50/50 shareholders could pay out to one shareholder is 50% of the reserves. This was a key point in Buck vs HMRC - the full dividend without a waiver had to be legal and payable. The Buck case was a doomed because the shareholder doing the waiver held 9,999 shares and the other shareholder held 1 but the principle is the same.

I don't know what's to stop the company immediately paying a second dividend of £2.5k per shareholder out of the remaining £5k reserves and the husband doing another waiver though. This could continue ad infinitum until the wife had taken all the reserves.so I don't know if people get away with it in practice.

If a dividend waiver is used then does the s660 legislation apply?

I don't think it does in this case anyway because there is no settlement. ie, the fee earner earned the money herself and paid herself a dividend. In fact, if the husband had NOT taken a dividend waiver then it could be argued that there was a settlement on the husband.

[malvolio]

Because the husband is already a higher rate taxpayer and doesn't want to take any dividends I assume.

So the answer is to risk an investigation by mis-applying the rules?

If people weren't quite do so paranoid about paying legitimately owed taxes, lilfe would be so much easier...

[Clare@InTouch]

Seriously don't understand...

If one contract is IR35 caught, that's paid out as 95% of gross less expenses. The balance - such as it is - stays in the company. The non-IR35 contract doesn't care, that's paid however you want.

So total income less (IR35 salary and taxes) less (non-IR35 salary and taxes) less (expenses and CT) leaves a profit which is shareable 50/50 as per the dividend split. Perfectly legal, perfectaly valid. So why talk about waivers?

Because the husband is already a higher rate taxpayer and doesn't want to take any dividends I assume.

[Craig at Nixon Williams]

I assume that you want to do this so that the wife gets their share of the income from the company through dividends and the husband gets his through salary?

An easier way of doing this would be for the husband to transfer his shares to the wife - the husband then continues to take his income as a salary, the wife gets all profits made by the company as dividends.

Hope this helps!
Craig