Paying dividends to company secretary already in full time job

**DaveB** · 16 September 2011, 21:21

Originally posted by legal View Post

My accountant says you can pay company secretary dividends but if HMRC in future says that you cannot pay dividends to someone who does not contribute to company than I might have to pay full taxes on that entire sum. This can go back up to 6 years from the time HMRC change their mind! (There is not current rule regarding this.)

Now its up to me... What would other members suggest please?

Secondly, I have to pay her salary and she will be on BR code. Then HMRC will refund the overtax payment at the end of year. Is this correct?

Thanks....

I'd have words with your accountant if I were you. Unless you are confusing salary and dividends.

Dividends are paid to share holders regardless of position with the company or otherwise. There is no way on earth HMRC would prevent the holding of shares in a company by anyone not contributing to it, otherwise everyone in the country who has shares as an investment would fall foul, and the entire stock market would fall apart since no-one would be able to buy and sell shares anymore. Holding shares in a company is completely irrelevant to any position with or employment by that company.

Tax investigations can go back up to 6 years if HMRC decide that there are errors in your tax returns. They cannot (yet, not with standing BN66) apply retrospective legislation and outlaw something that was previously legal and then hold you liable for everything prior to that change.

Just because she ( I am assuming it is your wife or partner) is co. secretary does not mean you have to pay her a salary. You can if you want to, but it has to be proportional to the work she does for the company. You cannot simply put her on the payroll and pay her 20 grand a year to do nothing. Most discussions around this have concluded that about 7k a year is acceptable provided they do some sort of work such as bookkeeping or other administrative tasks.

Her tax code will be whatever HMRC decides it should be unless you tell them it is wrong and why. As a shareholder she will have to complete a self assessment tax return at the end of the year and any over or under payment will be accounted for at that point. If you are due a refund you will get one.

Either you are seriously confused or your accountant is incompetent. If the former you need to go back and get them to explain it to you again, if the latter you need a new accountant.

**legal** · 18 September 2011, 07:59

Originally posted by DaveB View Post

I'd have words with your accountant if I were you. Unless you are confusing salary and dividends.

Dividends are paid to share holders regardless of position with the company or otherwise. There is no way on earth HMRC would prevent the holding of shares in a company by anyone not contributing to it, otherwise everyone in the country who has shares as an investment would fall foul, and the entire stock market would fall apart since no-one would be able to buy and sell shares anymore. Holding shares in a company is completely irrelevant to any position with or employment by that company.

Tax investigations can go back up to 6 years if HMRC decide that there are errors in your tax returns. They cannot (yet, not with standing BN66) apply retrospective legislation and outlaw something that was previously legal and then hold you liable for everything prior to that change.

Just because she ( I am assuming it is your wife or partner) is co. secretary does not mean you have to pay her a salary. You can if you want to, but it has to be proportional to the work she does for the company. You cannot simply put her on the payroll and pay her 20 grand a year to do nothing. Most discussions around this have concluded that about 7k a year is acceptable provided they do some sort of work such as bookkeeping or other administrative tasks.

Her tax code will be whatever HMRC decides it should be unless you tell them it is wrong and why. As a shareholder she will have to complete a self assessment tax return at the end of the year and any over or under payment will be accounted for at that point. If you are due a refund you will get one.

Either you are seriously confused or your accountant is incompetent. If the former you need to go back and get them to explain it to you again, if the latter you need a new accountant.

Dave thanks for the detailed reply. I am sure that this is about dividends. I thought the same that if she is a shareholder than she should get dividends. I am not sure why such a big company's accountant gave me advice on these lines. I will have a word with them.

Now she (company secretary) is earning 30k already as she is in full time job. And I am going to pay her £250 per month. How much dividends can I pay her for optimum tax structure?

Once again thanks for you advice.

**mudskipper** · 18 September 2011, 09:24

Originally posted by legal View Post

Dave thanks for the detailed reply. I am sure that this is about dividends. I thought the same that if she is a shareholder than she should get dividends. I am not sure why such a big company's accountant gave me advice on these lines. I will have a word with them.

Now she (company secretary) is earning 30k already as she is in full time job. And I am going to pay her £250 per month. How much dividends can I pay her for optimum tax structure?

Once again thanks for you advice.

Check out a dividend calculator which will tell you how much she can receive without incurring extra tax. (probably around 11K).

However, you have to pay dividends according to share allocation, so you'd need to work out what % of the total this was likely to be - you can't just give her 11K unless that matches the % of her share allocation compared to what you're getting.

As DaveB says, you don't have to pay her a salary. If she's not working for the company, then you shouldn't pay her a salary. You don't have to get a salary to be eligible for dividends.

**mudskipper** · 18 September 2011, 09:26

Originally posted by k2p2 View Post

Check out a dividend calculator which will tell you how much she can receive without incurring extra tax. (probably around 11K).

However, you have to pay dividends according to share allocation, so you'd need to work out what % of the total this was likely to be - you can't just give her 11K unless that matches the % of her share allocation compared to what you're getting.

As DaveB says, you don't have to pay her a salary. If she's not working for the company, then you shouldn't pay her a salary. You don't have to get a salary to be eligible for dividends.

Edit: I didn't account for the 250 a month you're paying her.

That would take it to around 7.5K

**Greg@CapitalCity** · 19 September 2011, 10:35

Yep, thats about right, legal. To optimise your wife's overall tax position, then she should be aiming to earn as close to the higher rate earnings threshold for dividend tax, as she can. For 2011/12, this is £42,475 in gross earnings.

So if you take off her current gross salary of £30,000, and also the £250/month gross salary, she is left with £42,475 - £30,000 - £3,000 = £9,475 in gross earnings before she hits the threshold. If that gap is going to be taken up with dividend payments, just keep in mind we're talking GROSS earnings here. So if your wife received a dividend payment of £8,500, then the gross earnings equivalent (including the dividend tax credit) = £8,500 x 10/9 = £9,444.44 (which would put her almost right at the threshold).

With this sort of planning just make sure you have considered all of your wife's earnings, from all sources.

**northernladuk** · 19 September 2011, 10:40

Am I right in thinking the OP needs to think carefully about this? He cannot really give his wife a split of his dividends as he has to pay her the percentage she is due. That means he is restricted in what dividends he pays himself as if he takes more it will push his wife over the limit.

The option is a type B share which he can pay any amount and at anytime not linked to his own dividend allocations but this can attract the attentions of HMRC?

That's right isn't it?

**Greg@CapitalCity** · 19 September 2011, 11:11

Originally posted by northernladuk View Post

The option is a type B share which he can pay any amount and at anytime not linked to his own dividend allocations but this can attract the attentions of HMRC?

Correct, that would be the best course to take. There is no problem so long as the Ordinary B shares rank pari passu (same voting rights, rights to capital etc) to the original shares. If, for example the voting rights were changed, the Settlements legislation could come into it and S660 would raise its head.

The HMRC will typically apply the Settlement rules when one spouse (or civil partner) gives away their income as a result of:
(a) Making a dividend waiver (wholly a right to income);
(b) Giving non-voting shares (wholly or mainly a right to income) to their spouse or civil partner;

So even if the arrangement was flagged up during a routine compliance visit;
(1) Ensure the B shares carry full rights;
(2) Avoid dividend waivers;
(3) Ensure dividends paid to the spouse, are paid into their own personal bank account;

**DaveB** · 19 September 2011, 11:14

Originally posted by northernladuk View Post

Am I right in thinking the OP needs to think carefully about this? He cannot really give his wife a split of his dividends as he has to pay her the percentage she is due. That means he is restricted in what dividends he pays himself as if he takes more it will push his wife over the limit.

The option is a type B share which he can pay any amount and at anytime not linked to his own dividend allocations but this can attract the attentions of HMRC?

That's right isn't it?

It depends on how he structures the share split. If he knows he will have a reasonable consistant level of dividend payments he can structure the split so that her share comins in at around 8.5k

Simple example - Total expected divi for the year is £85k. 10 shares split 9:1 his:hers means she gets 1/10th the dividend = 8.5k

Would take a bit of juggling but could be done.

Class B shares, or any diferentiation in class between shareholders, may well flag it for HMRC attention. The S660 income splitting case was won on the basis that the shares issued to the husband and wife were of equal value (individually, not in total).

**legal** · 19 September 2011, 13:20

Thanks all for such an explanatory reply.

I am sure I can split shares accordingly. Coz I am already setup as director and she is going to be CS now.

I have taken Perm salary of 10k and the accountant had advised to withdraw 29k in dividends. Now considering she will get 7.5k, I can split up dividends as 79.45 : 20.55 as Him : Her?

Cheers

Paying dividends to company secretary already in full time job