LTD Co Shareholding question.
Discussion
I and a potential business partner are looking at setting up a new company and I wondered if it is possible to use our existing Ltd companies as a shareholding entities within the new LTD co? If so, I assume the new LTD co will still require a Director and Co Sec.
Also what are the implications for PAYE and dividend payment, I would prefer not to draw PAYE wage from the new Co but only via my old Ltd Co. Also WRT expense claims, will I be able to claim milage from my old Ltd Co trading address to the new Ltd Co trading address even if I'm a director in the new Ltd Co?
Any thoughts, are we making this needlessly complex?
Ta!
Also what are the implications for PAYE and dividend payment, I would prefer not to draw PAYE wage from the new Co but only via my old Ltd Co. Also WRT expense claims, will I be able to claim milage from my old Ltd Co trading address to the new Ltd Co trading address even if I'm a director in the new Ltd Co?
Any thoughts, are we making this needlessly complex?
Ta!
xm5er said:
I and a potential business partner are looking at setting up a new company and I wondered if it is possible to use our existing Ltd companies as a shareholding entities within the new LTD co? If so, I assume the new LTD co will still require a Director and Co Sec.
Also what are the implications for PAYE and dividend payment, I would prefer not to draw PAYE wage from the new Co but only via my old Ltd Co. Also WRT expense claims, will I be able to claim milage from my old Ltd Co trading address to the new Ltd Co trading address even if I'm a director in the new Ltd Co?
Any thoughts, are we making this needlessly complex?
Ta!
One issue you may not have thought of in making your decision is that regardless of whether you own the shares or your company does so, it will be an associated company for Corporation Tax purposes, and your band that determines your corporation tax rate will change accordingly.
In answer to your question, yes the companies can be the shareholders.
It will definitely complicate matters.
Legally, shares can be owned by another company rather than an individual. In that case, dividends paid by the original company go to the company holding the shares rather than to an individual. THAT company would then pay Corporation Tax on that dividend income.
Also, if the sole purpose of the shareholding company is to own shares in another company, then it is deemed to be an "Investment" company rather than a "Trading" company and cannot avail itself of the various tax breaks and reliefs available to "small close trading companies".
Investment companies also have stricter reporting requirements under Company Law and are generally more complex (read "expensive"
for an accountnat to put together in the correct Statutory Formats.
Finally, you will still have the problem of extracting the money from the shareholding company. Once you do that, you will be liable to perrsonal Income Tax on that dividend income in exactly the same manner you would have been if you had extracted the dividend amount straight from the original company.
So, you would have to ask yourself "What was the point?"
Legally, shares can be owned by another company rather than an individual. In that case, dividends paid by the original company go to the company holding the shares rather than to an individual. THAT company would then pay Corporation Tax on that dividend income.
Also, if the sole purpose of the shareholding company is to own shares in another company, then it is deemed to be an "Investment" company rather than a "Trading" company and cannot avail itself of the various tax breaks and reliefs available to "small close trading companies".
Investment companies also have stricter reporting requirements under Company Law and are generally more complex (read "expensive"
for an accountnat to put together in the correct Statutory Formats. Finally, you will still have the problem of extracting the money from the shareholding company. Once you do that, you will be liable to perrsonal Income Tax on that dividend income in exactly the same manner you would have been if you had extracted the dividend amount straight from the original company.
So, you would have to ask yourself "What was the point?"
Eric does this (investment company) apply if you use a proportion of profits to invest in property and shares over a longer term when it is not the stated purpose of the company?
Also and before I start another thread. Is it possible to take a dividend from a company mid year and does this dividend amount count as Directors pay or company profit?
Also and before I start another thread. Is it possible to take a dividend from a company mid year and does this dividend amount count as Directors pay or company profit?
It is not unusual for normal trading companies to have investment income - e.g. interest received on bank accounts, rent from a property or even dividends from an associate or subsidiary company. As long as the investment income is ancilliary to the main trading activity, then the company will not lose its "trading" status. Unfortunately, "ancilliary" is not defined in the legislation. I would suggest investment income making up less than 50% of the combined trading and investment income of the company would be sufficient for the company to continue as a trading operation.
Obviously, the apportionment of the company's taxable profits for CT banding purposes will still apply once there are one or more associated companies.
Regarding dividends, there is no reason why a dividend cannot be made more than once in the company's trading year. Indeed, most PLCs issue at least two, the Interim Dividend and the Final Dividend. However, the key to a dividend being acceptable to a tax man is that the dividend is ALWAYS looked on as a distribution of company profits or reserves, not a method of remunerating an employee, officer or director of the company. Therefore, if the company intends to issue multiple dividends in a year it had better ensure:
that it is demonstrably not remuneration
that there were sufficient profits or reerves available to the company to make a dividend payment
that some sort of exercise was carried out to check on this (e.g. management accounts)
and that the frequency of dividend payments was comensurate with the normal dividend policy of the company
Obviously, the apportionment of the company's taxable profits for CT banding purposes will still apply once there are one or more associated companies.
Regarding dividends, there is no reason why a dividend cannot be made more than once in the company's trading year. Indeed, most PLCs issue at least two, the Interim Dividend and the Final Dividend. However, the key to a dividend being acceptable to a tax man is that the dividend is ALWAYS looked on as a distribution of company profits or reserves, not a method of remunerating an employee, officer or director of the company. Therefore, if the company intends to issue multiple dividends in a year it had better ensure:
that it is demonstrably not remuneration
that there were sufficient profits or reerves available to the company to make a dividend payment
that some sort of exercise was carried out to check on this (e.g. management accounts)
and that the frequency of dividend payments was comensurate with the normal dividend policy of the company
Interesting,
my accountant has advised I take a minimum salary and then take a dividend. Which logically makes sense but gets difficult when you state it the way you have. i.e. I need the dividend to pay mortgage short term etc but need to prove that the money used is profit as seen from a year end pov.
I'll need to check with him.
thanks though.
Mike
my accountant has advised I take a minimum salary and then take a dividend. Which logically makes sense but gets difficult when you state it the way you have. i.e. I need the dividend to pay mortgage short term etc but need to prove that the money used is profit as seen from a year end pov.
I'll need to check with him.
thanks though.
Mike
Eric Mc said:
I wouldn't necessarilly NOT draw a dividend on the basis that the Revenue MIGHT challege it.
However, the recent case of Arctic Systems shows that what had been considered accepted practice for many years can suddenly be hopped on by the Reveneue.
Though at present they have lost that one I believe Eric, unless they win in the House of Lords.
The Revenue won rounds one and two, lost round three. The final verdict will be from the House of Lords sometime soon.
However, they have certainly laid down a marker as to the areas they're looking at i.e. how small owner managed companies arrange payments to the directors and shareholders in order to minimise their tax and National Insurance liabilities.
However, they have certainly laid down a marker as to the areas they're looking at i.e. how small owner managed companies arrange payments to the directors and shareholders in order to minimise their tax and National Insurance liabilities.
Gassing Station | Business | Top of Page | What's New | My Stuff