Class B Shares

[TheFaQQer]

For anyone interested here is a recent case on dividend waivers in relation to settlements provisions http://www.financeandtaxtribunals.go...41/TC03188.pdf

The earlier case I referred to is Buck v HMRC, which was referred to in this case (Donovan & McLaren v HMRC)

[Craig@Clarity]

For anyone interested here is a recent case on dividend waivers in relation to settlements provisions http://www.financeandtaxtribunals.go...41/TC03188.pdf

[TheFaQQer]

Either way, it seems hard to see how a waiver in OPs situation, or different share classes, would be anything but waving a big red flag saying "investigate me". Not saying he would be (I still think the risk is relatively low overall) or that it might be worth considering in some situations, but simply to save a bit of tax for just this tax year it seems a bit silly to me.

I agree.

[TheCyclingProgrammer]

One of the main problems with the recent waiver case was that the company didn't have enough money to pay out the dividend if it wasn't waived, so therefore the dividend wasn't valid.

It was one of the problems but I'm not sure the case hinges on that fact alone. It was just one of the contributing factors I think. The important thing was that the judgement agreed with HMRCs view that a waived dividend represented a settlement in its own right, distinct from the original gift/transfer of shares and even if the shares did not count as a settlement or fell within the spousal exemption, the waiver, being no more than a gift of income, did not.

Either way, it seems hard to see how a waiver in OPs situation, or different share classes, would be anything but waving a big red flag saying "investigate me". Not saying he would be (I still think the risk is relatively low overall) or that it might be worth considering in some situations, but simply to save a bit of tax for just this tax year it seems a bit silly to me.

[TheFaQQer]

Given the recent dividend waiver case, I'd argue that a waiver is potentially more risky than alphabet shares, as it can be seen as a gift of income in its own right. Wouldn't touch it with a bargepole, not even as a one-off.

One of the main problems with the recent waiver case was that the company didn't have enough money to pay out the dividend if it wasn't waived, so therefore the dividend wasn't valid.

There is an older waiver case that I can't remember where he owned 9999 shares, the wife owned 1. When he paid a dividend to her of £30k and waived his right, it meant that the company would have needed £300million in reserves for it to be valid.

[ASB]

Yes and No.

Properly set up they are fine, certainly when used for commercial purposes (Savoy Hotel / Forte comes to mind), and even in marital/CP situations where there is a need to differentiate extractions.

However the OP seems to have little commercial nexus and to me does fall into the "risky" box; too soon after start up, (assumed) no substantive business underneath (no assets, premises or staff). I'ld find it hard to find a legal rationale for my thoughts, just instinct, "what am I happy to defend for my client".

Agree entirely. There is nothing intrinsically wrong with different share classes with different rights.

it is just that in the context of a small company and differing divis on the share there is a substantial risk under settlements legislation.

[Jessica@WhiteFieldTax]

Alphabet shares are risky.

Yes and No.

Properly set up they are fine, certainly when used for commercial purposes (Savoy Hotel / Forte comes to mind), and even in marital/CP situations where there is a need to differentiate extractions.

However the OP seems to have little commercial nexus and to me does fall into the "risky" box; too soon after start up, (assumed) no substantive business underneath (no assets, premises or staff). I'ld find it hard to find a legal rationale for my thoughts, just instinct, "what am I happy to defend for my client".

[ASB]

Given the recent dividend waiver case, I'd argue that a waiver is potentially more risky than alphabet shares, as it can be seen as a gift of income in its own right. Wouldn't touch it with a bargepole, not even as a one-off.

Fair commrnt. But.......

the major issue with those is that there wasnt the funds to pay the waived dividend. The doc I referred to also guides hmrc view on waivers.

[TheCyclingProgrammer]

Alphabet shares are risky. Also mentione specifically in the practitioners guide to tye settlement legislation as likely attack.

better might be to use a dividend waiver, also in the document, but ensure there are adequate funds to pay on all shares including the waived ones.

or accept that on occasion you cant arrange things totally to your own benefit.

Given the recent dividend waiver case, I'd argue that a waiver is potentially more risky than alphabet shares, as it can be seen as a gift of income in its own right. Wouldn't touch it with a bargepole, not even as a one-off.

[ASB]

Alphabet shares are risky. Also mentione specifically in the practitioners guide to tye settlement legislation as likely attack.

better might be to use a dividend waiver, also in the document, but ensure there are adequate funds to pay on all shares including the waived ones.

or accept that on occasion you cant arrange things totally to your own benefit.

[northernladuk]

Using a different class of shares to artificially lower your tax with no business justification at all. Hmmmm I wonder how much HMRC will like that.

I would certainly be looking to move accountants. I presume this isn't one of the more well known contractor specialists? Chatting to people I find that some accountants fly very lose with their advice including putting company cars on and claiming borderline stuff because in their opinion you won't get found out. Certainly not the advise I am looking for and would be off like a shot. Both accountants I had, a small one man band and SJD have both strongly suggested I stay away from Class B shares so that's good enough for me.

To be fair they also suggested I stay away from making your wife a shareholder as well but that is an arguable point.

Below is a search on all threads about Class B shares

https://www.google.co.uk/search?q=cl...m=122&ie=UTF-8

[TheCyclingProgrammer]

Remember: you don't have to take money out of the company unless you really need to. The tax year is almost over anyway...its not like you can go back and retrospectively change the share classes. Whatever you've paid out as dividends so far is going to be taxed 50/50 between you and your wife regardless.

If you haven't paid any dividends out yet so far this year, then just pay the absolute minimum you need to get by. With only a few weeks until the end of the tax year, why not just wait until the beginning of the new tax year to pay your dividends? If you need some cash now, a directors loan for a few weeks, paid off when you declare the dividend will tide you over.

Forget about it, move on. You're going to save a lot more in tax in the long run over future years to worry about a slightly higher tax bill this year.

[kal]

Seems like the sort of thing that would raise your risk profile with HMRC, all for the sake of paying extra tax for one tax year?

Depends on your attitude to risk and I'm not sure to what extent different share classes have been tested so far as settlements go, but my inclination would be to suck it up and take the tax hit for the first year.

If you do go ahead and do it, then the shares still need to rank pari passu with your shares, or they risk being deemed a right soley to income and the spouse exemption won't apply.

What were you planning to do from year 2 onwards?

As the man says REALLY not worth it, keep the money in the company account if you have to but don't do this FFS!!

[TheCyclingProgrammer]

Seems like the sort of thing that would raise your risk profile with HMRC, all for the sake of paying extra tax for one tax year?

Depends on your attitude to risk and I'm not sure to what extent different share classes have been tested so far as settlements go, but my inclination would be to suck it up and take the tax hit for the first year.

If you do go ahead and do it, then the shares still need to rank pari passu with your shares, or they risk being deemed a right soley to income and the spouse exemption won't apply.

What were you planning to do from year 2 onwards?

[Geekman]

I started my limited company in the middle of the financial year(sep 2013) and hence have considerable income from my permie job earlier in the year. My wife who is currently a 50% ordinary share holder (not director) of my company does not have any other income.

When splitting dividends 50-50, I have to pay a lot more tax due to my previous earning in the permie job. My account is advising me to change the share structure of the company and make my wife as class B share holder so I can give her all the dividend and still she doesn't have to pay any tax

Would this be seen by HMRC as a tax evasion method? Will that trigger an HMRC enquiry. Would appreciate if you can help me in this at your earliest as I have I take a swift decision

Many thank in advance!!