Reply to: Income Shifting after a few years

[WordIsBond]

Only thing absolutely necessary is to make sure the paperwork is clear. If your spouse is a shareholder, it is probably safer, but not required, to pay her dividends and yours into different accounts. If you are the only shareholder, do whatever, but make sure to do the paperwork so they can't argue that your dividends were salary and should be taxed accordingly. And there is something to be said for emailing dividend vouchers to your accountant at the time so no one can argue they were done after the fact.

[missinggreenfields]

Sorry Yes, Sole Director and 100 % Shareholder

If you only have that account, then it would be unreasonable to expect you to require another one just for dividends, so I would have no issue with paying dividends into a joint account.

I know it's not your situation, but if I only had a joint account and my wife was a shareholder, I would have no issue with paying dividends for both shareholders into the one account. But I would do it as two different transactions.

[Iter]

Do you mean sole shareholder?
if so, that's fine

Sorry Yes, Sole Director and 100 % Shareholder

[pr1]

Occurred to me today which will check with accountant... as sole director in Ltd company are dividends ok to be paid into a Joint account (this just happens to be my personal account with wife for bills etc).

The dividend payments are transferred from Business account. I also transfer my PAYE etc (but they are all separate not lumped!)

I can understand the reasoning for possibly paying a wifes didvidends into separate account if she was a joint shareholder but that isn't the case.

Effectively there is no shifting or reduction in tax anyway as I'm still liable for the full dividend tax being the sole director.

Do you mean sole shareholder?
if so, that's fine

[Iter]

Occurred to me today which will check with accountant... as sole director in Ltd company are dividends ok to be paid into a Joint account (this just happens to be my personal account with wife for bills etc).

The dividend payments are transferred from Business account. I also transfer my PAYE etc (but they are all separate not lumped!)

I can understand the reasoning for possibly paying a wifes didvidends into separate account if she was a joint shareholder but that isn't the case.

Effectively there is no shifting or reduction in tax anyway as I'm still liable for the full dividend tax being the sole director.

[TheCyclingProgrammer]

Your accountant is wrong, in my opinion. If you are going to do the share split then do it 50/50, that's what Arctic did and they won their case. The wife also took a salary and that wasn't questioned either...

To be fair, any split (up to 50/50 at least) is probably fine. A lower share might make more sense, tax wise. I don't understand the argument that the shareholding should reflect the contribution to the business either, but some accountants clearly err on the side of caution here.

[Wanderer]

my accountant says go for 80-20, an uneven split.....unless she's going to be contributing 50% effort towards the company....

Your accountant is wrong, in my opinion. If you are going to do the share split then do it 50/50, that's what Arctic did and they won their case. The wife also took a salary and that wasn't questioned either...

[northernladuk]

Let's not pretend that most people on here don't do this for any other reason other than to save tax or that most accountants (including many of those who post on here) won't recommend this as an efficient means of doing so. A company doesn't need to have a "business reason" to give shares to somebody.

Unless you're implying that HMRC could challenge these arrangements under a general anti-avoidance rule, in which case why did they even bother with the "Family Business Tax"?

I certainly don't and I am sure many others don't. It does have to have a business reason to be providing company funded laptops and phones. The husbands and wives shares thing is obviously a point of discussion but in a majority of cases the wife doesn't work. Pretending your wife is an agent, giving business kit and using the last couple of K of her tax threshold is just stupid. What is the savings? Hardly enough to push the boundaries so far.

Maybe people do use the loop holes here and there but Kevpuk's post just goes too far.

[wantacontract]

my accountant says go for 80-20, an uneven split.....unless she's going to be contributing 50% effort towards the company....

[TheCyclingProgrammer]

I wouldn't be overly surprised to see HMRC start to attack it under GAAR in the typical "one man band" type scenario to be honest.

Maybe. You can't rule anything out and I'm sure accountants will start to change their advice and people will restructure their affairs accordingly if anything happens. Ultimately, it depends how high you think the risk is of any kind of retrospective taxation. The entire thing seems to have been off HMRC's radar for years now (although we all know they still don't like it).

Would be interested to hear any of the board's regular posting accountant's views on this though!

[ASB]

I wouldn't be overly surprised to see HMRC start to attack it under GAAR in the typical "one man band" type scenario to be honest.

I'm not suggesting people should avoid doing it, but utilisation of the oh's nil rate band can bring a decent saving.

It's an easy potential hit.

And no, it won't end up being viewed as "family business tax", a bit of spin will see to that. After all in the family business the spouse is often to be found behind the shop counter, going to the cash and carry etc.

[TheCyclingProgrammer]

You are quite obviously just using your wife as a tax mule to gain advantage from the company for no business reason whatsoever which means anything you do, however you might justify it to yourself, will be tax avoidance.

Let's not pretend that most people on here don't do this for any other reason other than to save tax or that most accountants (including many of those who post on here) won't recommend this as an efficient means of doing so. A company doesn't need to have a "business reason" to give shares to somebody.

Unless you're implying that HMRC could challenge these arrangements under a general anti-avoidance rule, in which case why did they even bother with the "Family Business Tax"?

[northernladuk]

Good tips, there ^^ TCP and C@IT - thanks
I think it makes sense to use wifety's allowance a little better, and she can - in turn - be my Agent-no-I-don't-want-to-accept-a-lower-rate-than-we-agreed first point of contact. That has to be worth the odd dividend share - no salary mind!

You are quite obviously just using your wife as a tax mule to gain advantage from the company for no business reason whatsoever which means anything you do, however you might justify it to yourself, will be tax avoidance. Fishing around just to find some way to use your wife to make more money from the company isn't right.

Any accountant that advised you to go ahead with this carry on shouldn't be doing so IMO. They can tell you in a business situation this is allowable, in yours it isn't.

[kevpuk]

Good tips, there ^^ TCP and C@IT - thanks
I think it makes sense to use wifety's allowance a little better, and she can - in turn - be my Agent-no-I-don't-want-to-accept-a-lower-rate-than-we-agreed first point of contact. That has to be worth the odd dividend share - no salary mind!

[TheCyclingProgrammer]

Never previously given much thought to giving Mrs Kevpuk shares, but it might actually be worthwhile....
She earns circa. £35k pa in permie-dom, so I figure she has some headroom left prior to next tax threshold - gifting her, say, 20-25% shares could enable a dividend that maximises her available remaining 'allowance'? Of course, next step would be to supply her a phone and laptop from the company, so perhaps she should become Company Secretary or similar?

Start with how much you like to withdraw from the company on an annual basis and work from there.

Assuming you have taken the route of optimal salary + dividend combination to take you up to the higher tax rate threshold, you are probably taking approx. £30k (maybe slightly above but lets keep this simple) a year as a net dividend. That's £33.3k grossed up (remember you need to use the gross figure when determining your tax band).

A 20% shareholding would mean you could continue drawing the same amount of dividends with your wife receiving £6.6k (gross, £6k net) in dividends, which should take her up to, or just over the higher tax threshold.

You should make her an employee/director/company secretary to ensure she qualifies for ER on any capital distribution if you wind the company up in the future. You don't have to pay her a salary for being company secretary and indeed, it probably wouldn't make sense from a tax POV to do so.

If she is a director/employee/company secretary then you can *probably* give her a company provided phone using the one phone allowance, possibly claim use of home allowance (£4/week) and of course any business mileage, if any. Personally I think a laptop might be pushing it (company expenditure still needs to pass the "wholly and exclusively" test) so I'd run all of this past your accountant first if I were you!

Also, you don't have to justify giving her shares but I hope you'll be getting her to do some extra "admin" for you in return for the £6k tax free you'll be giving her each year!