Limited Company - Income Splitting yes or no?

[Wanderer]

I pointed out to the accountant:

"The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009" (Quoted from the pre-budget report, no less but they stick to their guns.)

They say this could be announced in the next budget and be implemented retrospectively so they recommend against it. If it was, could they charge penalties? As far as I can see it's perfectly legal tax avoidance under current law.

This is an accountant which is very well known here and recommended by PCG. They won't change their mind though. Their advice is NOT to income split but of course as director I can reject their advice and they will do what I ask them (within reason). Are they just covering their arse or should I shift accountants as Fred Bloggs suggests? I would much rather resolve this amicably than so through the agro of changing accountants but it looks like they are steadfast.

[malvolio]

Don't mess about, change the accountant right now to one who really understands the up to date situation with "income splitting" (I hate that term). Right now, IMO, there's little risk of an HMRC enquiry similar to Arctic Systems.

If the accountant is indeed PCG Accredited, he will have had some serious talking to about S660 as well as IR35 and how to deal with the freelance model. so he has no excuse for not understanding the situation. As others have said, get him to explain his concerns properly.

[cojak]

A lot of accountants recommend a minimum wage salary of 12K (or was it 10, I forget). I can't fathom a single argument that it makes sense and they can provide no evidence it lessens chance of investigation.

If investigated then 12K is no more a valid salary than 6K when in reality a permy rate for the same work would be 30K plus.

Bottom line...although every man and his dog says "ask your accountant" on this board, I'm a firm believer in guide your accountant to the answer you want to hear. Bit of a waste of money paying an accountant but proof one can not "trust the experts".

If yours is "well" off the mark, rather than seeing things from a warped angle, then give him the flick.

What do you think about reducing salary? Is this sensible if you've had an accountant recommend you do this, then your new one advises a reduction?

[simondolan]

I pointed out to the accountant:

"The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009" (Quoted from the pre-budget report, no less but they stick to their guns.)

They say this could be announced in the next budget and be implemented retrospectively so they recommend against it. If it was, could they charge penalties? As far as I can see it's perfectly legal tax avoidance under current law.

This is an accountant which is very well known here and recommended by PCG. They won't change their mind though. Their advice is NOT to income split but of course as director I can reject their advice and they will do what I ask them (within reason). Are they just covering their arse or should I shift accountants as Fred Bloggs suggests? I would much rather resolve this amicably than so through the agro of changing accountants but it looks like they are steadfast.

I'm quite happy to say that this is us. We have consistently advised that the choice must be up to the client, exactly what the risks are and what we perceive the position to be. We can only offer an opinion to a client, not an endorsement of a particular position. To guarantee a position one way or another would be irresponsible. My mail this morning to this particular client read:

"This has to be your personal decision as Lisa said. The Govt have quite clearly stated that they don't like it, consider it "unfair" and that they will review it. Technically at the moment splitting the shares would not be illegal and therefore you'd be doing nothing wrong, however my belief is that this could be open to retrospective challenge at some point in the future. How likely this is I just don't know, but it should be a consideration.

Whichever we you decide to go then you have our backing, its just that we have to make you aware of what we perceive to be the risks"

These days the Govt are moving the goalposts every 5 seconds and I'd hate for a client to blindly press ahead without knowing what the risks are, even small risks.

[pjclarke]

Naive Question

I am in this boat - wife working as administrator, paid £500/month, two shares in the company, both owned by myself, dividends generally take me over the higher rate threshold. Been wondering about the advisability of transferring a share to Mrs C. [We are also an SJD client].

Q. From a tax/legal perspective, if I were to give/sell Mrs C a share and paid her half the divvies, what would be the difference between that dividend income and the dividend income she recieves from her Barclays shares [say]?

Or is the risk elsewhere?

This is a hypothetical question, as I have no actual plans to do this, the rewards do nnot justify the risk, just wondering ....

[malvolio]

Income is income, as far as the tax man is concerned.

While I understand Simon's misgivings about future changes, right now it's entirely legal so if it saves you lining HMRC's pockets I can't see why you shouldn't. If SWMBO is doing real work for the Company (as was Mrs Jones in Arctic) there is even less to worry about, since the arrangement is clearly not totally artificial.

If they do bring in Family Business Tax legislation, it will be very hard to make it retrospective given the very clear and very senior ruling on "the Intent of Parliament" in the Arctic case. Doesn't mean they won't try, of course.

[BolshieBastard]

I pointed out to the accountant:

"The Government has consulted on this issue, but given the current economic challenges is deferring action on income shifting and will not bring forward legislation at Finance Bill 2009" (Quoted from the pre-budget report, no less but they stick to their guns.)

They say this could be announced in the next budget and be implemented retrospectively so they recommend against it. If it was, could they charge penalties? As far as I can see it's perfectly legal tax avoidance under current law.

This is an accountant which is very well known here and recommended by PCG. They won't change their mind though. Their advice is NOT to income split but of course as director I can reject their advice and they will do what I ask them (within reason). Are they just covering their arse or should I shift accountants as Fred Bloggs suggests? I would much rather resolve this amicably than so through the agro of changing accountants but it looks like they are steadfast.

I've read the response below from sjd and frankly, I think their line is shocking. S660 is just not on the statute book. Its not even being considered for the upcoming budget to my knowledge.

If S660 was on statute or HMG had been making nosies it will be introduced in the budget, I could understand their position. But it isnt and I dont.

I'd change accountant but thankfully I've got one who's sensible about such matters so, I've no need to.

I guess this is the type of service you get when you pay 50 to 60 quid a month for advice.

[Fred Bloggs]

If the accountant is indeed PCG Accredited, he will have had some serious talking to about S660 as well as IR35 and how to deal with the freelance model. so he has no excuse for not understanding the situation. As others have said, get him to explain his concerns properly.

This is my point really, a PCG accredited accountant should realise that a HMRC attack on the Arctic Systems income split model is extremely unlikely indeed. Heck, for months, even when the Arctic case was going on the DTi website recommended this model for a small incorporated business. Oh how I wish I had saved that web page. I wonder if the internet archive servers have a copy of that page?

[Fred Bloggs]

I've read the response below from sjd and frankly, I think their line is shocking. S660 is just not on the statute book. Its not even being considered for the upcoming budget to my knowledge.

If S660 was on statute or HMG had been making nosies it will be introduced in the budget, I could understand their position. But it isnt and I dont.

I'd change accountant but thankfully I've got one who's sensible about such matters so, I've no need to.

I guess this is the type of service you get when you pay 50 to 60 quid a month for advice.

SJD are actually pretty expensive as it goes, certainly not cheap. That's rubbish advice though. I can't be bothered to look, but there used to be (still is?) a contractors guide on SJD's website that even recommended folding your company every three years or so to maximise your retention. I may still have a copy of it in fact from about 5 or 6 years ago.

[Fred Bloggs]

I've read Simon's response and it's fair enough as far as it goes. However, I think he's wrong and so do the House of Lords as the law stands today.

Move accountants, IF you now get investigated SJD can now say "we told you so". That's an untenable position to be in for all SJD's clients as their view is now on the public record.