Dividend to Wife

[russell]

My wife does the accounts and paperwork and other stuff for my Ltd company, I am going to make her 50% share holder. So I will pay her half the dividends that I used to pay myself. We have a joint personal account but she also has her own personal account.

Is it better to pay hers into her own account?
Regarding self assessment would it take into account my own dividends or all from the company?

[Clare@InTouch]

I don't see a problem with paying into a joint account, as long as you have the dividend vouchers to back up the payments.

Your tax return will show your dividends (so your 50% share), and her tax return will show hers (assuming she needs to complete one, which she may not need to).

[russell]

I don't see a problem with paying into a joint account, as long as you have the dividend vouchers to back up the payments.

Your tax return will show your dividends (so your 50% share), and her tax return will show hers (assuming she needs to complete one, which she may not need to).

So dividends are already taxed and there is no more tax to pay? She earns 35k will it affect her tax?

[eek]

So dividends are already taxed and there is no more tax to pay? She earns 35k will it affect her tax?

The tax on dividends is covered by the tax credit for the standard tax rate so you could use the rest of her standard rate tax allowance. After that she would have to pay higher rate tax on the dividend payment so there is no real sense in making her a 50% share holder.

Get your accountant to check but I think making her a 15% shareholder is probably the correct percentage to allow the rest of the allowance to be used while allowing you to use all yours efficiently.

[russell]

The tax on dividends is covered by the tax credit for the standard tax rate so you could use the rest of her standard rate tax allowance. After that she would have to pay higher rate tax on the dividend payment so there is no real sense in making her a 50% share holder.

Get your accountant to check but I think making her a 15% shareholder is probably the correct percentage to allow the rest of the allowance to be used while allowing you to use all yours efficiently.

Ok sounds about right, it's not worth going above the 40k.

[northernladuk]

To be totally anal about this the old paperwork and accounts thing is utter rubbish... in most cases that is.... You pay an accountant 1k a year to do your accounts so cannot justify paying anyone else even close to that to help and get away with it. In my mind this is an excuse to justify it to yourself but will never ... again in most cases... cut the mustard when it comes to an investigation.

After reading questions on divis the last couple of months including input from Daniel at SJD I would personally avoid the 50% route if you can. The only reason you would go for that over 70/30 split is becuase you cannot get all your money out of the company due to you hitting the limit. That means you are altering the number for one reason and that is to get more money out and avoid tax. A split would demostrate a much more realistic approach to your business and not tax avoidance.

That is my personal opinion and one hotly debated over the last few months. My accountant advised 70/30 and justified it well enough for me to believe it is a better option and more reflective of your situation so will keep HMRC just that bit happier.

With respect to which account to pay it in to I think Clare is right and joint accounts being fine. If you do put it in to hers don't be tempted to start transfering from her to you. That is going to look very bad if you get investigated.

[psychocandy]

To be totally anal about this the old paperwork and accounts thing is utter rubbish... in most cases that is.... You pay an accountant 1k a year to do your accounts so cannot justify paying anyone else even close to that to help and get away with it. In my mind this is an excuse to justify it to yourself but will never ... again in most cases... cut the mustard when it comes to an investigation.

After reading questions on divis the last couple of months including input from Daniel at SJD I would personally avoid the 50% route if you can. The only reason you would go for that over 70/30 split is becuase you cannot get all your money out of the company due to you hitting the limit. That means you are altering the number for one reason and that is to get more money out and avoid tax. A split would demostrate a much more realistic approach to your business and not tax avoidance.

That is my personal opinion and one hotly debated over the last few months. My accountant advised 70/30 and justified it well enough for me to believe it is a better option and more reflective of your situation so will keep HMRC just that bit happier.

With respect to which account to pay it in to I think Clare is right and joint accounts being fine. If you do put it in to hers don't be tempted to start transfering from her to you. That is going to look very bad if you get investigated.

But surely this amount of work done thing only applies if wife is an employee of the company? I.e. you cant pay the Mrs £10K a year for a bit of filing.

OP is making his Mrs a shareholder so working has got nothing to do with it. After all, you can earn shares in say, BT, but you dont work for them.

Whether the share split thing is sensible is something different. I agree everyone does this to pay less tax. But isnt that the difference between tax avoidance and tax evasion? i.e ones ok and ones not.

And if you're going to base it on amount of work done to get income into your company then 70/30 is not much more an accurate reflection than 50/50. (assuming your Mrs isnt someone you might send in as a sub one day). More like 99/1 (if she does a bit of admin). Might as well be hung for a sheep as a lamb....

I'm with NW now and they advise that 50/50 is OK but I agree opinions differ.

I do wonder about the joint account thing though for paying divs. Probably wont bother but will make sure the dividend payments are two separate cheques in each persons name.

[JamJarST]

But surely this amount of work done thing only applies if wife is an employee of the company? I.e. you cant pay the Mrs £10K a year for a bit of filing.

OP is making his Mrs a shareholder so working has got nothing to do with it. After all, you can earn shares in say, BT, but you dont work for them.

Whether the share split thing is sensible is something different. I agree everyone does this to pay less tax. But isnt that the difference between tax avoidance and tax evasion? i.e ones ok and ones not.

And if you're going to base it on amount of work done to get income into your company then 70/30 is not much more an accurate reflection than 50/50. (assuming your Mrs isnt someone you might send in as a sub one day). More like 99/1 (if she does a bit of admin). Might as well be hung for a sheep as a lamb....

I'm with NW now and they advise that 50/50 is OK but I agree opinions differ.

I do wonder about the joint account thing though for paying divs. Probably wont bother but will make sure the dividend payments are two separate cheques in each persons name.

Your arguments do make some sense but whilst you can can own shares in BT and not work for them, you invest in BT and that investment is what earns you the div. Is the wife investing in the company?

[psychocandy]

Your arguments do make some sense but whilst you can can own shares in BT and not work for them, you invest in BT and that investment is what earns you the div. Is the wife investing in the company?

True. Not sure if the paying of £1 per share counts as investment, does it?

But then again its perfectly legal to 'gift' the shares to your spouse, isnt it? I could be wrong but isnt this where the Arctic comes into play? (although my understanding is they need to be 'normal' shares)

[northernladuk]

There is the legal issue which is technically correct. You can gift shares, your partner can have as many as you want yadda yadda... all of which are up to you to do or not.

What you have to bear in mind is that these rules were not designed for a one man company. They are a rule that applies to everyone from us to huge corporations. No rule covers everyone completely and some where along the line they get a bit grey and you get in to a situation where you believe what you are doing is right but HMRC will beg to differ. There is also the issue of the spirit of the law as well. You may follow the rules to the letter but can get in trouble if you do not ahere to the spirit. Hiding behind words doesn't not always make you safe.

HMRC come along and say 'So Mr X, why are you giving you wife 50% of shares instead of a 70/30 99/1 whatever' The only real answer to this is it allows you to withdraw the max limit for both of you instead of you paying tax on the extra you give your wife. HMRC are not going to look kindly on this. It looks like you are using your partner to maximise your take out and minimise tax. From that point a huge argument ensues that will probably only be resolved in court. If a 70/30 split avoids this with you saying I pay a small amount to my partner but it's my business, my money and I earn it but I can give a little away, then it is worth doing that IMO.

The 24 month rule, the 7K a year to parner for doing sod all etc etc.. all small potatoes on their own but if it doesn't cost me much more or there are other better ways of doing it I don't think it a small price to pay if I ever get investigated.

The more of us that do 50/50, pay partners for doing sod all the wiser HMRC will get to it and focus their efforts. Granted historically they have been pretty poor at nailing it and getting round to doing a decent job of it but it is still something I would rather avoid.

To be fair so many do this and so few get caught up in it I most probably making a mountain out of a molehill but I find it interesting to discuss the theory off it so apologies about the long winded gumpf which probably doesn't help the situation.