New Dividend rules.

[Marcellus]

Working through some solutions/options with my accountant to manage our personal tax liability.

Situation is of a small Limited company with 2 shares and 2 shareholders (Husband and wife).

Currently 1 of the shareholders is a lower rate tax holder and the 2nd is a higher rate tax payer so once they are paid more than £5k dividend it gets taxed at that rate.

We're wanting to pay 1 shareholder £4999 and the other the balance but whilst they both have equal shares we can't.

So current thoughts of a plan is;
1. Call a general meeting; issue a bonus "A" share for each ordinary share held. (so each shareholder has 1 ordinary and 1 "a" share)
2. Notify Companies House of the share issue.
3. Hold a directors' meeting to transfer one ordinary share from #2 to #1 and one "A" share from #1 to #2. (which would leave #1 with 2 ordinary and #2 with 2 "A" shares.
4. Notify Companies House of the share change.
5. Declare different level of dividends to "ordinary" and "A" shareholders.

Is this the best/easiest way to do things?

[Marcellus]

Thanks Eric, is there a way the same result could be achieved without HMRC getting twitchy?

[Marcellus]

Not "purely" it's also to be more reflective that shareholder #1 spends 100% of their time working for the company whereas shareholder #2 now works elsewhere but historically did work for the business.

[Marcellus]

Eric Mc said:

Is the missus a director as well?

Yes and shareholder #1 and shareholder #2 are the only directors.

[Marcellus]

Eric Mc said:

Does she receive a salary from the company?

No

[Marcellus]

Eric Mc said:

Is there a reason why she doesn't?

Their job already takes them well into top rate tax band!

[Marcellus]

Jockman said:

Does she do any work for the Company?

On a daily/weekly basis not but on an adhoc basis some

[Marcellus]

Eric Mc said:

Marcellus said:

Eric Mc said:

Is there a reason why she doesn't?

Their job already takes them well into top rate tax band!

Fair enough. No point in paying a salary if it is going to be taxed in its entirety at the higher rates of tax.

Of course, her dividends (over £5,000) will also be taxed at the higher rates of tax pertaining to dividends.

So, the question has to be, why IS she a director/shareholder of the company?

For the business no real reason apart from we started the business together and once it gained traction they moved on to new projects.... emotionally for the same reason we have joint bank accounts/mortgages etc etc etc!