Ltd Co Share Distribution

[flyinghaggis]

Lurker turned poster. About time really.

I'm aware of the probable impending changes to income shifting, etc but I wondered if any of you had any experience of a change in share distribution for an existing Ltd Co. (about 12 years trading with a single shareholder) sparking a check by Hector ?

Intend to grant the new missus an equal share and just wanted to see if this would be a wise move in the opinion of the informed majority ?

Accountant has suggested the closure of the existing company and the start of another but that's not a path I'd like to go down.

Any experiences/info welcomed, thanks.

[rachel]

Transferring / moving shares between spouses is very easy to do. You will need to complete a form J30 which is the share transfer form and notify Companies House on your next annual return.

Whether or not it is a good idea completely depends on your circumstances.

For example, does your wife have additional earned income or investment income for the tax year 08/09? How many share are currently in issue? Is the company earning enough money to make the transfer of share economical?

On the basis that you wife does not have any other sources of income and the company is earning enough money to pay dividends to you both then transfering shares around can be very economic. You may also want to consider putting her on a basic wage through payroll to utilise her annual allowance and keep her National Insurance records up to date.

If you wife does have other income then ths would need looking at in more detail. If you split the shares 50/50 then dividends should be paid equally. This could cause your wife to go into higher rate tax without needing to. if this is the case you may want to look at spliting the share in another ratio so that you can pay dividends and bothuse up your basic rate tax bands without going into higher rate tax.

Nothing has been anounced yet as to how they plan to get around income shifting. They said that they would bring it in last year but didn't get anything passed in time. However, it is highly likely that they will introduce new rules in April 09.

There is nothing stopping you transferring the shares now and then transferring them back when the income shifting rules come into place.

The form J30 mentioned above does not need to be submitted to Companies House. Therefore if the dividends have been paid into a joint account then there is nothing stopping you backdating the form!! Although I didn't say that!! But make sure if you do backdate the form that you don't date it any earlier than the date the last Annual Return was made up to or any earlier that 6th April 2008.

Your accountant may have avalid point regarding winding up the company and starting a fresh. If the company has a high level if retained earning then winding a company up can be very tax efficient as you will not pay any more than 10% personal tax, unless of you have already made significant capital gains in the last year.

If you do go down the road of winding the company up the you may want to consider distributing half the shares in the company to your wife as you can take advantage of both of your annual capital gains exemptions! Thus reducing the tax even further!

Be aware that if you do go down the road of winding up the company then you must finish any contracts first. If you carry a contract onto the new company then it can be seen as a continuation of trade and therefore the profits taken when winding up the company can be deemed to be income which is taxable at 40% instead of a capital gain which is taxed at an effective rate of 10%.

Sorry if i've just overloaded you with information but I hope this helps!!!

[flyinghaggis]

Thanks rachel, response greatly appreicated.

[THEPUMA]

Therefore if the dividends have been paid into a joint account then there is nothing stopping you backdating the form!! Although I didn't say that!!

...

Your accountant may have avalid point regarding winding up the company and starting a fresh. If the company has a high level if retained earning then winding a company up can be very tax efficient as you will not pay any more than 10% personal tax, unless of you have already made significant capital gains in the last year.

...

Be aware that if you do go down the road of winding up the company then you must finish any contracts first. If you carry a contract onto the new company then it can be seen as a continuation of trade and therefore the profits taken when winding up the company can be deemed to be income which is taxable at 40% instead of a capital gain which is taxed at an effective rate of 10%.

Re backdating dividends, crikey that is worrying. Have you not heard of the money laundering regulations?! You are going to be in prison before you know it if you go around making public suggestions like that.

And your suggestion of winding up the company and starting afresh with a new contract is totally flawed. The cessation of a contract doesn't mean the trade has ceased so this simply doesn't work.

[rachel]

The Puma

With regards to back dating dividends, I have to agree that I should not be making suggestions like that on here or elsewhere for that matter - apologies.

I agree that the cessation of the contract is not the only thing to consider when winding the company up. But as his accountant who knows about his business has suggested winding up then I'm guessing other matters have been considered. I was simply pointing out the potential implications of winding a company up to set up a new one and the Revenue deeming it to be a continuation of trade. I was also trying to suggest that if done correctly and legally this can be very tax efficient and should not be instantly dismissed.

Flying Haggis

I strongly suggest you sit down with your accountant to make sure that whatever you decide to do is done in the most tax effective way.

[THEPUMA]

Fair enough. I'll get back down off my high horse.