non-spouse director

**DaveB** · 30 March 2016, 14:30

Originally posted by damien3 View Post

I've been doing some general reading and thought i would air this to see if anyone had a view. if one as a sole company director was to appoints a non-spouse as a company director gifting them dividends however the total amount of dividend paid out by the business to all directors was below the threshold for taxation for any single director (e.g 30k) could HMRC still investigate this as possible tax fraud or avoidance?

Only if they had reason to believe that dividends paid to one director were somehow making their way back to the other director after being paid.

But you weren't planning on doing that, were you?

EDIT: Missed the non-spouse bit. The rules on gifting shares only apply to spouses I believe c.f. the Artic Systems case. Anyone else would be liable for CGT etc on the shares given.

**damien3** · 30 March 2016, 14:42

and I'm guessing here but since they can only ask you to pay whatever tax you've avoided (in any fine) and you've avoided none because if paid out all to you whatever you still wouldn't have incurred any income tax (due to dividend being below the tax threshold ) could they still even in that circumstance waste their time.

just hypothesizing here for anyone that may think my ignorance i has no bounds

**northernladuk** · 30 March 2016, 14:43

You have asked your accountant about this haven't you?

Inatead of flailing about with guesses why not get advice from a professional. The question may seem quite simple to you but the answer is far from it. And don't expect any advice on what will happen if I get caught so I can weigh the risks up.

**DaveB** · 30 March 2016, 14:53

Originally posted by damien3 View Post

and I'm guessing here but since they can only ask you to pay whatever tax you've avoided (in any fine) and you've avoided none because if paid out all to you whatever you still wouldn't have incurred any income tax (due to dividend being below the tax threshold ) could they still even in that circumstance waste their time.

just hypothesizing here for anyone that may think my ignorance i has no bounds

No, because the penalties don't just include the unpaid tax but actual fines on top of that as well.

And if the full dividends amount would be below the threshold anyway then what's the point of splitting it to begin with?

And you are still ignoring the CGT liability on the other director. HMRC will look at the relative value of the shares based on dividends paid as if they had been bought on the open market and hand them a tax bill as a result. And you can't sell them "cheap" as they will see that as an evasion of CGT anyway.

**Pondlife** · 30 March 2016, 14:55

Originally posted by damien3 View Post

and I'm guessing here but since they can only ask you to pay whatever tax you've avoided (in any fine) and you've avoided none because if paid out all to you whatever you still wouldn't have incurred any income tax (due to dividend being below the tax threshold ) could they still even in that circumstance waste their time.

just hypothesizing here for anyone that may think my ignorance i has no bounds

This post makes no sense.

Are you saying that the sum of the dividends paid out will be less than the threshold? If so, why bother?

If it's greater and HMRC view the setup as artificial then not only will you owe the tax but potentially also a fine of up to 100% of the tax owed, plus interest.

Edit: WDBS

**Pondlife** · 30 March 2016, 14:57

Also, if at any point your shareholding is less than 50% I assume the others could vote together and remove you as director.

**TheCyclingProgrammer** · 30 March 2016, 14:57

DaveB - you've got this a bit backwards re CGT. It would be the person giving away their shares who is liable to CGT. You would need to get your company valued to ascertain the overall gain though it may be within your CGT allowance anyway. Alternatively you could look at gift holdover relief.

CGT is of course a separate issue to whether or not there is a settlements issue. Depending on the nature of the gift it may or may not be a settlement and if it is it may or may not be caught by the anti avoidance provisions under s624 of the settlements legislation, depending on whether or not the settlor (giver) or their spouse retains an interest. A gift to an unrelated party without strings attached and where any dividends do not somehow make their way back to the settlor should not, in theory, be caught.

It's unclear what OPs intentions are. If it's tax avoidance they might come unstuck but as long as the dividends don't come back to them there shouldn't be a problem. Nobody knows for sure as non spouse income splitting is untested in court AFAIK. The "spouse exemption" doesn't apply but that doesn't matter as its only of relevance when shares are gifted to a spouse or the spouse stands to benefit in some way from the transfer. It's a common misconception on here that the spouse exemption is an exemption from the settlements legislation in general (it's not - spouse transfers can still be caught) or that all non spouse scenarios are caught automatically (they aren't).

If OP has a genuine business reason for giving the shares away then that should be fine too.

**northernladuk** · 30 March 2016, 15:11

Yeah... What TCP says ya cockwomble.

**TheCyclingProgrammer** · 30 March 2016, 15:12

Originally posted by damien3 View Post

I've been doing some general reading and thought i would air this to see if anyone had a view. if one as a sole company director was to appoints a non-spouse as a company director gifting them dividends however the total amount of dividend paid out by the business to all directors was below the threshold for taxation for any single director (e.g 30k) could HMRC still investigate this as possible tax fraud or avoidance?

Yes they could in theory, would they in practice? Unlikely if no tax has been avoided. HMRC don't seem too interested in tackling income splitting much these days but there's nothing to say that couldn't change again in future.

non-spouse director