Originally posted by Alchemy Accountancy
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New limited company, IT consultant, husband and wife scenario
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Originally posted by Franklin09 View PostI am concerned because I have heard from a friend that sharing dividend with a partner is "risky and could attract HMRC inspection" which then could possibly lead to an IR35 investigation. In other words, don't split your dividend and keep low profile. Pay ~35% in taxes (as opposed to ~25%) to not attract HMRC.
Similar for my plan B, where instead of sharing dividends with my partner, I would own 100% of shares and pay everything beyond £46,351 into SIPP. Again, this would apparently be seen by HMRC as tax avoidance.
There is NOTHING wrong with your plan B. I don't know who said this is tax avoidance, but company pension contributions are entirely acceptable. In fact, if Mrs is doing the book-keeping, you could and arguably should make her a director and be making a pension contribution for her. If all the pension is in your name then at retirement all the income will be in your name, which isn't very tax efficient.Comment
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Both are fine. You can afford an accountant, go get one!
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Originally posted by webberg View PostWhy do you need a limited company?
The dividend tax free allowance is of minimal value these days.
I see the advantage of a dividend for employer NIC purposes (and this is perhaps a weakness in terms of "will HMRC come chasing") but other than that, where is the benefit?
I don't know if your clients are in the public sector or not, but from April 2020 it will make little difference. From then the end client will determine IR35 status for each contract.
We believe that HMRC is staring to collect data from big employers about which contractors are now "outside IR35" but following the new rules, will be "inside". Paired with a very mealy mouthed "promise" not to investigate this situation historically (which many in the sector do not believe), we think that there is going to be huge pressure on end clients to put people inside IR35.
At that point, the limited company serves no purpose.
If not, if he has even one outside IR35 gig every two years, having a limited company will be well worth it.
Even in the public sector not every contract was thrown inside IR35, and the private sector is likely to be more cost-conscious and slower to make blanket assessments.
In short, unless every contract is dragged into IR35, which is highly unlikely, your comment adds nothing to this thread. Even if every contract is inside, there's the liability protection.
Where is the benefit? Well, for one, in addition to the dividend allowance he's going to be able to use up his wife's basic rate band. That alone is a substantive benefit. CT plus Div Tax is lower than IT plus ERNI plus EENI. Company pension contributions don't incur any tax, self-employed pension contributions still incur NI. The ability to avoid the higher rate band and hold funds in reserve for bench time. Limited liability.
That's a pretty substantial list of benefits, thousands of pounds a year, if he's outside IR35.Comment
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Originally posted by WLB2018 View PostAs long as she is really doing the "bookkeeping" and you can prove it you are fineComment
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Originally posted by TheCyclingProgrammer View PostIf she is doing work for the company and/or is made a director a small salary could also be justifiable.Comment
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Originally posted by WordIsBond View PostCorrect on all points. But, of course, it wouldn't be tax efficient to pay her a salary since she has other income.Comment
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Originally posted by WordIsBond View PostCorrect on all points. But, of course, it wouldn't be tax efficient to pay her a salary since she has other income.
So oversimplifying a little bit, and assuming basic rate taxpayer, you can end up in the situation where comparison is:
- salary = 20% personal tax
- dividends = 19% corporation tax + 7.5% personal tax (assuming dividends will go beyond £2k dividend allowance).
Salary marginally wins. Of course it's far more significant where someone doesn't have any other salary, as then it's 0% personal tax vs 19% corporation tax.Comment
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Originally posted by BR14 View PostWhat does your accountant say?⭐️ Gold Star ContractorComment
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