Got Married - Add spouse ?

[konsultant]

A 'belated' Happy New Year to you all.

I recently (few months) got married and would like to know whats the norm among contractors in terms of adding their spouse within the company. My spouse isnt working at the moment.

I enquired with the accountant and I was told that HMRC can attack income shifting from a higher tax payer to basic...not sure what that means.

Does everyone normally add their spouse as a director or secretary? Do you pay a salary or dividend ? Is it advisable to split the stock?

Thank you

[northernladuk]

Just married? Hell no. It goes wrong and you've just given half your company away.

https://www.ons.gov.uk/peoplepopulat...dandwales/2013

For those married in 1968, 20% of marriages had ended in divorce by the 15th wedding anniversary whereas for those married in 1998, almost a third of marriages (32%) had ended by this time

Now I'm a gambling man and that's not something I'd put half my company on, particularly with the number of threads we have on here with people in trouble.

Your call.

[northernladuk]

You also say at the moment. You don't want to be changing your structure so if that's gonna change soon it's not worth doing.

[TheCyclingProgrammer]

TLDR; yes you should, if it makes sense for your personal financial circumstances and you are aware of the implications.

One of the least risky forms of income splitting is to make your spouse a shareholder. What percentage you choose is up to you. Some do 50/50, my wife has 25%.

You need to consider her future employment and salary prospects too. No point paying her £30k dividends a year if a) she would pay higher rate tax on it anyway or b) your business isn't making enough profit.

As far as whether HMRC can attack it, there is a significant piece of case law known as the Artic systems case which established under what circumstances income splitting with a spouse could be caught by a piece of anti-avoidance legislation known as the settlements legislation (s624 formerly s660) and when it could not.

So long as you gift ordinary shares that rank equally with your shares and there's no dodgy arrangements to funnel any dividends directly back to you (e.g. by paying them into your account - her dividends are hers to do as she pleases with) or any conditions attached under which the shares must be returned to you) then this arrangement is safe from attack. I'm surprised your accountant didn't explain this to you.

You may want to consider making her a company officer too as this would make her eligible for entrepreneurs relief in the future if you ever close the company and take a capital distribution (under today's rules anyway). Doesn't have to be a director, company secretary will do. Director is probably easiest and the rules for two directors without employment contracts regarding pension auto enrolment are clear (you can opt out).

If she is a director you could also pay her a nominal salary. Discuss this with your accountant.

[TheCyclingProgrammer]

Just married? Hell no. It goes wrong and you've just given half your company away

He's married. If it all goes wrong, he will probably end up giving half of it away anyway!

[northernladuk]

He's married. If it all goes wrong, he will probably end up giving half of it away anyway!

You are even more cheerful than me

And on a sub note OP might be time for a new accountant

[ladymuck]

I wouldn't do it but then I've managed to avoid anyone putting a ring on it.

[Maslins]

He's married. If it all goes wrong, he will probably end up giving half of it away anyway!

This. I'm no divorce lawyer but as I understand it your spouse is basically entitled to half of whatever you've got (and vice versa) so wouldn't really matter whether they had 50% of your company or you had 100% anyway.

I think it does make sense to involve them, though do consider not only their independent earnings right now, but also expectations of the near future.

[SimonMac]

If you are thinking of paying the wife a salary there are also considerations to be made:

1) The salary has to be appropriate for the role she is doing, you can't pay her £11k a year for doing sweet FA
2) If she is an employee she will be entitled to a pension, so look into auto enrollment etc. etc.

[VillageContractor]

What about changing shareholding % for the wife after a couple of years? Does HMRC get pissy about that?