Reply to: LTD Company reorganization

It's not Corporation Tax you'll be saving, it's personal tax but yes in principle you are right to use up her full allowance this year whilst you can. I thought I heard somewhere dividend waivers can be looked upon as dodgy but I think that was before the Arctic Case was resolved so I assume they are ok now. Alternatively give her 100% of the shares, declare £39K and then take the shares back again.

Yes I am thinking along those lines as well..Cheers ...any other inputs guys...i have mailed my accountants as well...lets c what they think of it...

[Lewis]

I wonder whether I could do the following
Since from this month onwards my wife is one of the director in my company I will transfer 50% shares to her .Then I will declare dividends before this year end and I will waiver dividends for me so that the entire dividends goes to her(so that her gross income for the her in this year end touches and stays beneath the £39,825 threshold).This way I can reduce CT for this year.

It's not Corporation Tax you'll be saving, it's personal tax but yes in principle you are right to use up her full allowance this year whilst you can. I thought I heard somewhere dividend waivers can be looked upon as dodgy but I think that was before the Arctic Case was resolved so I assume they are ok now. Alternatively give her 100% of the shares, declare £39K and then take the shares back again.

[ASB]

I wonder whether I could do the following
Since from this month onwards my wife is one of the director in my company I will transfer 50% shares to her .Then I will declare dividends before this year end and I will waiver dividends for me so that the entire dividends goes to her(so that her gross income for the her in this year end touches and stays beneath the £39,825 threshold).This way I can reduce CT for this year.

If there is an income shifting legislation coming post April6th then I will retransfer the 50% from her to myself.

Let me know your thoughts

By the way she does contribute to the business by Proof reading documents, a bit of admin, making phone calls...

1) Paying dividends does not reduce CT
2) Does she do 39k worth of work?
2a) Yes. No worries
2b) Possibly caught by S660, but given the current state of Arctic case you may choose to believe you are OK (personally that's my vies, but it ain't my money)

Whether your wife is a director or not is irrelevant from the ownership of shares.

Better solution is to ensure you use all your normal allowance. Calculate your estimate of how much is left over and transfer the requisite number of shares to her. dividend waivers are a red rage to HMCR. Also there are various other attack HMCR could choose to mount based on thier interpretation of S660. Whether they will or not remains to be seen. But there are arguments as to whether the sahres should be gifted, bought or originally subscribed for. Any of these could have an impact.

[Me, I'd just to the above but I've never been overly bothered about what the taxman might think if I believe what I am doing is OK]

[Lewis]

Could you give a bit more detail on how this helps? Do you just pay yourself the same dividends every year irrespective of actual company earnings?

Basically, don't take money out via dividend if it will take you into the higher rate bracket, instead keep it in the company for a year when you don't work much and so can take it out at lower rate instead.

Ok...I operate through my own LTD company.Until 13/11/2007 my company had myself as the company director and company secretary and my friend as the other director,with me holding 100% of the shares.
Since 13/11/2007 my friend has resigned from my company directorship and I wanted to appoint my wife as one of the director of my company and sent the relevant forms to companies house but they have still not done it.They say they have not received any forms yet..anyway here are my doubts..


1) Can a company exist with just one person in the capacity of both director and secretary??
2) Can I appoint my wife as another director to my company so that I can start paying her salary and dividends(after allocating her 50% of shares??).My accountant says not to do this as there is an legislation comes into effect from april 2008 which forbids allocating shares to a close family member
3) If option2 is not feasible then is it possible to treat my wife as one of my employee for my company (she is an IT consultant as well, but does'nt work now due to child birth).If yes can I pay her back dated salaries(the NMW) so that I can reduce my company's tax burden?

I wonder whether I could do the following
Since from this month onwards my wife is one of the director in my company I will transfer 50% shares to her .Then I will declare dividends before this year end and I will waiver dividends for me so that the entire dividends goes to her(so that her gross income for the her in this year end touches and stays beneath the £39,825 threshold).This way I can reduce CT for this year.

If there is an income shifting legislation coming post April6th then I will retransfer the 50% from her to myself.

Let me know your thoughts

By the way she does contribute to the business by Proof reading documents, a bit of admin, making phone calls...

[ASB]

Excpet of course the whole point of Arctic was that such an arrangement is entirely legal and within the intent of the current tax law. And have you thought of the problem where you "give" 50% of your income to someone else but are taxed as though the whole amount was yours. Where does the money come from to pay the tax bill?

I'm not trying to say it's fair - it isn't. Simply workable - it isn't. I was only responding to the suggestion that it makes it "illegal" for certain people to own shares in the company. It doesn't do that.

Your last point is entirely valid of course. But it does exist in a number of areas. A large gift and dies within 7 years - the estate cop the IHT bill of course.

Current S660 legislation behaves in exactly the way you describe. Oh, and don't forget those gifts to the kids which produce income. The donor is taxed on those (in some circumstances) [Although this is just a subset of S660 anyway].

But yes, it is a crap system.

[malvolio]

I could be wrong but the legislation does not in any way control share ownership.

What the legislation does do is seek to the tax donor on the income the shares generated under certain circumstances. The OP can quite happily give/sell the shares to his partner. The only question is his tax position afterwards.

Excpet of course the whole point of Arctic was that such an arrangement is entirely legal and within the intent of the current tax law. And have you thought of the problem where you "give" 50% of your income to someone else but are taxed as though the whole amount was yours. Where does the money come from to pay the tax bill?

[XLMonkey]

Could you give a bit more detail on how this helps? Do you just pay yourself the same dividends every year irrespective of actual company earnings?

Yes, basically that's it.

[sumo]

- building up cash in the company (i.e. not paying yourself everything that the company earns), so that you can smooth out the amount of tax you pay from year to year.

Could you give a bit more detail on how this helps? Do you just pay yourself the same dividends every year irrespective of actual company earnings?

[ASB]

You say your other half is an IT professional that is currently not working.

Could she do some work for you (even part time) to justify the share ownership? Proof reading documents, a bit of admin, making phone calls...

The legislation is only to prevent people from gifting shares when there is no reason to do it other than to save tax. If your wife legitimately does some work for the business, then she can legitimately own some shares.


However, I am not a lawyer or an accountant..... .

I could be wrong but the legislation does not in any way control share ownership.

What the legislation does do is seek to the tax donor on the income the shares generated under certain circumstances. The OP can quite happily give/sell the shares to his partner. The only question is his tax position afterwards.

[SueEllen]

That's where it gets really scary. Their idea is to somehow quantify the extent of the contribution and apportion the tax liability to suit. So basically you'll have to keep accurate timesheets or something... and work out the market rate salary for the work in question to justify the income split. Of course if there is no tax advantage then nothing is payable - but you will still have had to go through the grinder to prove it.

And if your partner stops working for the company the year after but still has shares in the company then it would be considered income shifting.

Oh and not all the examples mention being married they include examples of partnerships and what people consider traditional family businesses i.e. father and adult children.

So it looks like HMRC are being given a law which they can use against anybody in a small business where there is more than one shareholder.

[malvolio]

Are they are planning to make this income-shifting legislation retrospective? Or is it not yet known?

No it starts on April 6th, but worse than that, they will apparently be able to apply it to earnings based on income already in the company... Time for end-of-tax-year divivies everyone.

Even if that partner is a revenue earner within the organisation?

That's where it gets really scary. Their idea is to somehow quantify the extent of the contribution and apportion the tax liability to suit. So basically you'll have to keep accurate timesheets or something... and work out the market rate salary for the work in question to justify the income split. Of course if there is no tax advantage then nothing is payable - but you will still have had to go through the grinder to prove it.

Like I said, a complete dogs dinner, coming to a statute book near you very soon. Also, using their own numbers, it will realise about £250m a year - is it really worth it, you have to ask.

[Ardesco]

Are they are planning to make this income-shifting legislation retrospective? Or is it not yet known?

Well they set a precident back in 2004 so thay could do if they wanted to, slimey bastards...

Wouldn't surpise me if they did just so that they could go back to Arctic Systems and take a wedge of cash from them while singing "Nyah Nyah Nyah Nyah Nyah".

About the mentality of the government atm it would seem....

[oracleslave]

Having read the proposal, it looks like anyone who has a legal partner who has shares in the business is going to get investigated.

Even if that partner is a revenue earner within the organisation?

[gadgetman]

Are they are planning to make this income-shifting legislation retrospective? Or is it not yet known?