Dividends paid to wife

[MON93]

I have not been doing contract work through my limited company for over two years, it has been practically dormant. I have income from other employment.

I have been advised to allocate different types of shares for me and my wife, shares type A and B, as a way to pay dividends to my wife only without me recieving any dividends or salary from the limited company. The advice I recieved was that doing so when I am not contracting and earning through the company should not be a problem. I was told that such approach would have been a problem if I was still doing contract work. I think my source of advice is quite reliable, but just in case, I need a second opinion and wonder if anyone on this forum is able to kindly provide it.

Additionally, if I vote dividends to my wife on 31 March 2012 to be paid as her 2011-12 financial year income, then vote further dividends on 30 October 2012 for her 2012-13 income, could it be disputed by the IR if all the voted funds were paid to her account between October - December 2012, i.e. her 2011-12 dividends were actually transferred to her in the following FY. (in different payments)? Could the IR treat all such dividends as her 2012-13 income?

[northernladuk]

Can I ask why you are wanting to run that arrangement you describe in the bottom paragraph? Why not just pay her when you vote? It isn't because you don't have sufficient cash in the bank when you are voting the dividends is it but trying to get it in the year to use the tax threshold?

[Greg@CapitalCity]

Hi MON93. Whats the aim here? Do you have surplus retained earnings in your business that you want to pay out to your wife to get the bank balance down to £0? How about just gifting your shares to her, instead of messing about with Ord A and B shares. Is entrepreneurs relief available to you?

Dividends are counted in the tax year they were voted, not necessarily when they were paid. Just make sure your documentation is up to scratch, and make sure you don't prepare any dividend vouchers retrospectively.

[Wanderer]

make sure you don't prepare any dividend vouchers retrospectively.

I'm sure this never happens.

But what if a dividend was voted at a shareholder meeting and the dividend vouchers were prepared at a later date?

[Jessica@WhiteFieldTax]

I'm sure this never happens.

Never, ever ever....

Additionally, if I vote dividends to my wife on 31 March 2012 to be paid as her 2011-12 financial year income, then vote further dividends on 30 October 2012 for her 2012-13 income, could it be disputed by the IR if all the voted funds were paid to her account between October - December 2012, i.e. her 2011-12 dividends were actually transferred to her in the following FY. (in different payments)? Could the IR treat all such dividends as her 2012-13 income?

Generally the rule is:

~ if its a final dividend, voting date is relevant

~ if its a interim dividend payment date is relevant

So in respect of 11-12 if the dividends were voted (note past tense!) on 31 March as final dividends, then they would be 11-12 income based on voting date. TBH even if they weren't "final" I think the voting date would stick them in that year.

[Jessica@WhiteFieldTax]

One further comment to OP, do you have an accountant, if so what do they say? They ought to be able to advise you and, more importantly, see the administration and any follow up through.

Sometimes things aren't black and white, and your accountant should be able to advise the best solution, and what they feel is defensible.

[MON93]

Thanks for the five helpful replies, especially from Greg@CapitalTax and Jessica@WhiteFieldTax.

Greg: yes I wanted to bring the balance of the company account to zero but I also have a DCA balance to repay. I believe entrepreneurs relief is available to me (for funds below 25K I think) but I need to settle the DCA matter first before I look at this option.

From the replies it seems the Ord shares A and B route is feasible (I was not aware of the gift option before, thanks) and there is no problem paying all dividends to share type B only for two financial years during 2012 - provided the dividends vouchers are prepared in advance. Many thanks for the advice and additional assurance.