Having non-working spuse on payroll
Discussion
blindswelledrat said:
Owining a limited company an obvious way of reducing tax bills for higher rate taxpayers is paying a non working spouse and in effect getting the benefit of two tax allowances/low rate tax.
Is this very standard practice or is it a definite no-no?
Thanks
Who are they to say shes a non worker Is this very standard practice or is it a definite no-no?
Thanks
The whole Section 660a battle in the Arctic Systems case over the past couple of years has kind of passed you by, hasn't it? 
Basically, yes you can at the moment, but now that the Revenue have lost the Arctic case and 660a doesn't hold in this circumstance, they are "rushing through" legislation to block what they consider to be a loophole so that you soon won't be able to.
Edit: This is what Plotloss is alluding to, BTW.
Basically, yes you can at the moment, but now that the Revenue have lost the Arctic case and 660a doesn't hold in this circumstance, they are "rushing through" legislation to block what they consider to be a loophole so that you soon won't be able to.
Edit: This is what Plotloss is alluding to, BTW.
Edited by JonRB on Wednesday 22 August 10:01
JonRB said:
The whole Section 660a battle in the Arctic Systems case over the past couple of years has kind of passed you by, hasn't it?
That whole sentence passed me by TBH!!!jonb said:
Basically, yes you can at the moment, but now that the Revenue have lost the Arctic case and 660a doesn't hold in this circumstance, they are "rushing through" legislation to block what they conside to be a loophole so that you soon won't be able to.
So are you saying that it is actually legal to do without hiding anything?When will the loophole be closed?
Make her a director for a start. At least then she has a legal responsibility within the company for which she can be remunerated.
Find tasks that can be allocated to her - no matter how menial - such as answering the business 'phone, making diary notes on your behalf, doing some of the paperwork, emptying the office waste paper bin - it doesn't matter.
What you then chose to pay her is your decision.
Arctic Sysytems was not quite the same -
the wife, although a shareholder, was NOT a director
she admitted that she did NOTHING in the business
she was only paid a dividend
The Revenue's initial argument was that she needed to work in the business to "deserve" a dividend - which is absolutely contrary to what dividends are about. Legally, all an individual needs to do to be entitled to a dividend is own shares in a company. She satisfied that criteria.
Find tasks that can be allocated to her - no matter how menial - such as answering the business 'phone, making diary notes on your behalf, doing some of the paperwork, emptying the office waste paper bin - it doesn't matter.
What you then chose to pay her is your decision.
Arctic Sysytems was not quite the same -
the wife, although a shareholder, was NOT a director
she admitted that she did NOTHING in the business
she was only paid a dividend
The Revenue's initial argument was that she needed to work in the business to "deserve" a dividend - which is absolutely contrary to what dividends are about. Legally, all an individual needs to do to be entitled to a dividend is own shares in a company. She satisfied that criteria.
Edited by Eric Mc on Wednesday 22 August 10:08
Good post as ever Eric.
If I were going to go down that route would it not just be simpler and even more tax efficient to make her a shareholder (albeit a different class of shares to me/my business partner) and pay her dividends?
If Artic was about dividends as you suggest there is no 'loophole' that they could possibly close is there?
If I were going to go down that route would it not just be simpler and even more tax efficient to make her a shareholder (albeit a different class of shares to me/my business partner) and pay her dividends?
If Artic was about dividends as you suggest there is no 'loophole' that they could possibly close is there?
Eric Mc said:
The Revenue's initial argument was that she needed to work in the business to "deserve" a dividend - which is absolutely contrary to what dividends are about. Legally, all an individual needs to do to be entitled to a dividend is own shares in a company. She satisfied that criteria.
Indeed. Which just goes to show yet again that the Revenue doesn't consider small companies (especially "one man band" or PSC) to be "proper" companies and won't be satisfied until everyone is a wage slave and all entrepeneurial spirit is stifled. But that's a stale rant so I'll shut up. 
It never ceases to amaze me how the Revenue is quite happy to contradict itself and make up rules and arguments as they go along to suit themselves. Very much "yeah, but no, but yeah, but anyway you have to pay us lots of tax, right?"
blindswelledrat said:
Why not though? How could it possibly change?
New legislation. Simple as that.The only advantage the Arctic case will bring us in the long term is that new legislation cannot be applied retrospectively, whereas the Arctic case was an attempt to apply an existing statute in a new way so that if it had succeeded they could have collected back tax up to 6 years.
The Arctic Systems case kicked off with the Revenue demanding £40k in back tax, so the stakes were quite high.
JonRB said:
blindswelledrat said:
Why not though? How could it possibly change?
New legislation. Simple as that.The only advantage the Arctic case will bring us in the long term is that new legislation cannot be applied retrospectively, whereas the Arctic case was an attempt to apply an existing statute in a new way so that if it had succeeded they could have collected back tax up to 6 years.
The Arctic Systems case kicked off with the Revenue demanding £40k in back tax, so the stakes were quite high.
If they made it just director's spouses then it preculdes a spouse holding legitimate shares in a copmany their OH is a director of. If they limit it to spouse then what about those who aren't married? If they make it anyone who personally knows the director it'd be anightmare to enforce!!!
No doubt any legislation will half thought out and either introduce more confusion or be so vague thet the revenue use it to hit more people than intended by the rules in the first place.
I'd probably be okay - my wife is also company sec and does significant work for the company (accounts, payroll, etc) but as she's a higher rate tax payer anyway there's no benefit to it anyway!
IainT said:
But, if they made it so that a shareholder had to work in the compay to receive the dividend the whole stock market would break.
!
Quite, !
it is exactly what all the business and tax mags are saying at the moment.
the government are trying to have "one rule for them and another rule for us" bt i am hoping, in this case, that it won't be possible.
All they have to do is introduce a new type of company in addition to the existing "Private Limited Company" and "Public Limited Company". I dunno, something like "Small Private Limited Company" or "Golden Goose Company" or "Cash Cow Company" or "Not A Proper Company" and then throw all the crap at them. If they had their way they'd make the directors pay tax on all company profits as if it were PAYE / NI personal income like they try to do with IR35.
Naturally all "one man bands" and companies of under X employees will be deemed to be a "Not A Proper Company" and be hit by this. Doesn't matter if it wipes out small businesses in the process - the present government is no friend of them anyway.
Naturally all "one man bands" and companies of under X employees will be deemed to be a "Not A Proper Company" and be hit by this. Doesn't matter if it wipes out small businesses in the process - the present government is no friend of them anyway.
Edited by JonRB on Wednesday 22 August 16:31
Eric Mc said:
They certainly do seem to have it in for small businesses. They are leaving the big boys alone because they pay nice big donations to the political parties - or should that be "loans".
Small businesses have no real political clout so are being properly shafted at the moment.
Yup - thank Small businesses have no real political clout so are being properly shafted at the moment.
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