Having the wife as company secretary

[oop north]

Do bear in mind that the income paid as dividend is never totally tax free - corporation tax is paid on th underlying profit in the company before it's paid out as dividend.

[youngsyr]

oop north said:

Do bear in mind that the income paid as dividend is never totally tax free - corporation tax is paid on th underlying profit in the company before it's paid out as dividend.

It's pedantic I know, but there are ways to get dividend income out of a company without paying any tax on either the dividend or the underlying profit, so whilst it's correct to say "usually dividend income is not totally tax free", it's incorrect to say it "never" is.

[ashleyman]

youngsyr said:

It's pedantic I know, but there are ways to get dividend income out of a company without paying a tax, so whilst it's correct to say "usually dividend income is not totally tax free", it's incorrect to say it "never" is.

And this is why paying for a good accountant often costs you less in the bigger scheme of things as they save you enough tax to make a profit and pay their fees.

[Eric Mc]

youngsyr said:

It's pedantic I know, but there are ways to get dividend income out of a company without paying any tax on either the dividend or the underlying profit, so whilst it's correct to say "usually dividend income is not totally tax free", it's incorrect to say it "never" is.

That's usually by calling it something else other than a dividend - such as a loan repayment. If it genuinely IS a loan repayment, then that's OK. If it isn't really aloan repayment, then you may be on dangerous ground.

[youngsyr]

Eric Mc said:

youngsyr said:

It's pedantic I know, but there are ways to get dividend income out of a company without paying any tax on either the dividend or the underlying profit, so whilst it's correct to say "usually dividend income is not totally tax free", it's incorrect to say it "never" is.

That's usually by calling it something else other than a dividend - such as a loan repayment. If it genuinely IS a loan repayment, then that's OK. If it isn't really aloan repayment, then you may be on dangerous ground.

I'm no tax expert, but I understand there are ways of channelling profits to jurisdictions from where there is no withholding tax paid on dividends to the UK. So, the profit is made in a jurisdiction with no corporation tax and the dividend is then routed via certain jurisdictions back to the UK, still as a dividend?

Also more simply, is it not possible to use brought forward/group losses to offset tax on profits to nil, but still pay a dividend in the profitable company?

[Eric Mc]

Sounds highly dodgy.

UK residents are taxed on their worldwide income - so sending a dividend around the house in the hope that it magically loses its taxable status because it has passed through a few overseas jurisdictions doesn't hold water for me.

The only way this would work would be for the UK taxpayer to fail to declare their "foreign" income on their UK tax return - which is of course, tax evasion rather than avoidance and therefore illegal.

Not sure about your losses point to be honest. If an individual receives a dividend, they are liable to personal Income Tax on that dividend income. I don't see what company losses have got to do with reducing an individual's personal tax liability.

[Piersman2]

bigandclever said:

Tonsko said:

Eric Mc said:

Not personally but there have been quite a few cases now. Read up on this one -

http://www.contractoruk.com/ir35/why_dragonfly_got...

So there are a few. I was beginning to think that they were hen's teeth. That said, I've seen the figures that the gov't were expecting to get when this legislation was introduced, and the actual figure (such as has been released) is but a paltry single digit percentage.

What's also annoying, is that some senior establishment figures run their affairs like this as well.

We've no idea how many get investigated and capitulate at the first hurdle so their case never gets close to the prosecution stage. Or how many 'self-select' and operate as caught.

Very few. When IR35 first came in and the accountancy firms were running a bit nervous a sizeable percentage of contractors that I know were advised to go IR35 by their accountants, I would guess about 25% did so. Within a year most of these guys had reverted to 'normal'. I'm not aware of a single contractor that operates within IR35 now.

But then I primariy operate within IT projects so by definition most of us would argue we're not IR35 anyways. Maybe IR35 it's more prevalent in people doing more BAU support type roles.

The ones that end of up in court usually seem to be the ones where even I as a 25 year+ contractor would say they were taking the piss!

[youngsyr]

Eric Mc said:

Sounds highly dodgy.

UK residents are taxed on their worldwide income - so sending a dividend around the house in the hope that it magically loses its taxable status because it has passed through a few overseas jurisdictions doesn't hold water for me.

The only way this would work would be for the UK taxpayer to fail to declare their "foreign" income on their UK tax return - which is of course, tax evasion rather than avoidance and therefore illegal.

Not sure about your losses point to be honest. If an individual receives a dividend, they are liable to personal Income Tax on that dividend income. I don't see what company losses have got to do with reducing an individual's personal tax liability.

Read back up the chain - my point is that dividends can be paid out of a company without the company paying tax on the underlying profit - a situation that another poster claimed was not possible.

We've already agreed that an individual can receive up to £5k of dividends without paying tax on them

[Eric Mc]

A company can pay out dividends even if it hasn't made a profit in the year the dividends are paid - so, no profit, no Corporation Tax. All it needs to have is sufficient reserves - which would already have been built up historically.

[Guvernator]

Keep it simple, you don't need to make her a company secretary or even a director, you can just make her an employee and still pay her a wage. If you want to pay her dividends you will need to make her a shareholder but that's a very simple process. No need to to overcomplicate things.

[youngsyr]

Getting back to the subject, it's possible for a company to have different classes of shares, e.g. Class A, Class B, which to all intents and purposes are identical.

Let's say I own all of the A class shares in my company and the A class shares account for 95% of the equity in the company, and my wife owns all of the B Class shares in the company, which account for the remaining 5% of equity in the company.

Can I pay myself £50k in Class A dividends and have £5k tax free and then pay my wife £5k in Class B dividends and her have that as tax free income?

The point I'm trying to make is that it would be more tax efficient to be able to pay my wife £5k of dividends to use up her personal allowance, but dividends have to be paid equally (in line with % shareholding) to all shareholders, which would take a lot of organising in shareholding %s to ensure I get what I need out of the company each year whilst not paying my wife more than £5k.

With two different share classes, I could pay myself whatever I felt like and could always pay my wife £5k (or whatever the allowance is that year).

[Jockman]

Guvernator said:

Keep it simple, you don't need to make her a company secretary or even a director, you can just make her an employee and still pay her a wage. If you want to pay her dividends you will need to make her a shareholder but that's a very simple process. No need to to overcomplicate things.

I think I'm right in saying that the primary purpose of making her an Office Holder is to afford her Entrepreneur's Relief at the point of sale of the Shares (min 5%).

It also exempts her from NMW regs.

[Jockman]

youngsyr said:

Getting back to the subject, it's possible for a company to have different classes of shares, e.g. Class A, Class B, which to all intents and purposes are identical.

Let's say I own all of the A class shares in my company and the A class shares account for 95% of the equity in the company, and my wife owns all of the B Class shares in the company, which account for the remaining 5% of equity in the company.

Can I pay myself £50k in Class A dividends and have £5k tax free and then pay my wife £5k in Class B dividends and her have that as tax free income?

The point I'm trying to make is that it would be more tax efficient to be able to pay my wife £5k of dividends to use up her personal allowance, but dividends have to be paid equally (in line with % shareholding) to all shareholders, which would take a lot of organising in shareholding %s to ensure I get what I need out of the company each year whilst not paying my wife more than £5k.

With two different share classes, I could pay myself whatever I felt like and could always pay my wife £5k (or whatever the allowance is that year).

We do Alphabet Shares - be careful. They are a prime target for HMRC and so must be done properly. The Shareholder's Agreement must not contain a frivolous shareholding and there must be NO clauses permitting you to retract the shareholding if she runs off with Mick from HR.

When you say personal allowance do you mean her £5k Divi Allowance or the £11k Personal Allowance?

[youngsyr]

Jockman said:

youngsyr said:

Getting back to the subject, it's possible for a company to have different classes of shares, e.g. Class A, Class B, which to all intents and purposes are identical.

Let's say I own all of the A class shares in my company and the A class shares account for 95% of the equity in the company, and my wife owns all of the B Class shares in the company, which account for the remaining 5% of equity in the company.

Can I pay myself £50k in Class A dividends and have £5k tax free and then pay my wife £5k in Class B dividends and her have that as tax free income?

The point I'm trying to make is that it would be more tax efficient to be able to pay my wife £5k of dividends to use up her personal allowance, but dividends have to be paid equally (in line with % shareholding) to all shareholders, which would take a lot of organising in shareholding %s to ensure I get what I need out of the company each year whilst not paying my wife more than £5k.

With two different share classes, I could pay myself whatever I felt like and could always pay my wife £5k (or whatever the allowance is that year).

We do Alphabet Shares - be careful. They are a prime target for HMRC and so must be done properly. The Shareholder's Agreement must not contain a frivolous shareholding and there must be NO clauses permitting you to retract the shareholding if she runs off with Mick from HR.

When you say personal allowance do you mean her £5k Divi Allowance or the £11k Personal Allowance?

That's interesting, what's the definition of a "frivolous shareholding"?

I meant the £5k divi allowance - my wife has a salary and savings income, but no dividend income.

[Jockman]

youngsyr said:

That's interesting, what's the definition of a "frivolous shareholding"?

I meant the £5k divi allowance - my wife has a salary and savings income, but no dividend income.

We were advised that HMRC would not challenge 8%.

[Guvernator]

Jockman said:

I think I'm right in saying that the primary purpose of making her an Office Holder is to afford her Entrepreneur's Relief at the point of sale of the Shares (min 5%).

It also exempts her from NMW regs.

It's his own company, not really sure why you'd be selling shares?

You can pay a salary of £8060 as stated in posts above which tops up your NI contributions without having to pay tax. If she works part time, this won't fall foul of NMW.

[Jockman]

Guvernator said:

Jockman said:

I think I'm right in saying that the primary purpose of making her an Office Holder is to afford her Entrepreneur's Relief at the point of sale of the Shares (min 5%).

It also exempts her from NMW regs.

It's his own company, not really sure why you'd be selling shares?

You can pay a salary of £8060 as stated in posts above which tops up your NI contributions without having to pay tax. If she works part time, this won't fall foul of NMW.

When the Company is sold at some time in the future?

Part Timers are still liable to NMW.

[Guvernator]

Jockman said:

Guvernator said:

Jockman said:

I think I'm right in saying that the primary purpose of making her an Office Holder is to afford her Entrepreneur's Relief at the point of sale of the Shares (min 5%).

It also exempts her from NMW regs.

It's his own company, not really sure why you'd be selling shares?

You can pay a salary of £8060 as stated in posts above which tops up your NI contributions without having to pay tax. If she works part time, this won't fall foul of NMW.

When the Company is sold at some time in the future?

Part Timers are still liable to NMW.

He's a one man band consultancy, I don't think he is going to be selling the company any time soon.

A part time secretary\admin assistant working 16 hours a week on £8k a year won't.

Just throwing it out as an option, you don't HAVE to make them a secretary or Director as some people believe. I certainly didn't, cuts down on a lot of the hassle\paperwork.

[Jockman]

Guvernator said:

Just throwing it out as an option, you don't HAVE to make them a secretary or Director as some people believe. I certainly didn't, cuts down on a lot of the hassle\paperwork.

Indeed, you don't. We did so that all will be eligible for ER in the future. It's no hassle and takes up less than 3 minutes of time per annum as they are required to do nothing.

Each to their own I suppose.

[Guvernator]

Jockman said:

Guvernator said:

Just throwing it out as an option, you don't HAVE to make them a secretary or Director as some people believe. I certainly didn't, cuts down on a lot of the hassle\paperwork.

Indeed, you don't. We did so that all will be eligible for ER in the future. It's no hassle and takes up less than 3 minutes of time per annum as they are required to do nothing.

Each to their own I suppose.

Maybe I just didn't like the thought of making my OH a company director, she already tries to direct the rest of my life