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Splitting shares with spouse- optimal setup

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    Splitting shares with spouse- optimal setup

    Hi,

    My spouse has been getting 50/50 dividends since I started my company. Now my accountant recommended that I make her a company director and start paying her a salary up to £12,500 as that would save me some Corporation Tax. Is that a common setup with contractors splitting their shares? Or is it something that you won't recommend doing?

    Any feedback appreciated!

    #2
    What is she doing to earn 12k a year?
    Last edited by Contractor UK; 25 May 2019, 13:25.
    'CUK forum personality of 2011 - Winner - Yes really!!!!

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      #3
      [QUOTE=northernladuk;2638400]What is she doing to earn 12k a year?

      Well, doing some admin work like reconciling accounts, checking payments are on time, preparing my timesheets, etc. Not sure if that would justify that salary? Anyone?
      Last edited by Contractor UK; 25 May 2019, 13:25.

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        #4
        Originally posted by skysies View Post
        Well, doing some admin work like reconciling accounts, checking payments are on time, preparing my timesheets, etc. Not sure if that would justify that salary? Anyone?
        make her a director as well and then yes.
        £12k a year for basic book-keeping is a good salary, but that's your problem.
        The responsibilities of being a director as well make it just fine for Hector.
        See You Next Tuesday

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          #5
          Originally posted by Lance View Post
          make her a director as well and then yes.
          £12k a year for basic book-keeping is a good salary, but that's your problem.
          The responsibilities of being a director as well make it just fine for Hector.
          No it doesn't.

          And nor does

          Well, doing some admin work like reconciling accounts, checking payments are on time, preparing my timesheets, etc.

          Does the OP need someone to do that and if they did would they pay them 12k a year?
          Last edited by Contractor UK; 25 May 2019, 13:25.
          'CUK forum personality of 2011 - Winner - Yes really!!!!

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            #6
            Originally posted by northernladuk View Post
            No it doesn't.

            Does the OP need someone to do that and if they did would they pay them 12k a year?
            Well, I can definitely lower the salary if that doesn't seem justified. One main consideration is to qualify for the 30 hour free childcare. My wife has to work at least 16 hours a week on the minimum wage.

            Which is around £525 per month, or £6300 a year. I guess that salary would seem reasonable?

            Comment


              #7
              Originally posted by skysies View Post
              Well, I can definitely lower the salary if that doesn't seem justified. One main consideration is to qualify for the 30 hour free childcare. My wife has to work at least 16 hours a week on the minimum wage.

              Which is around £525 per month, or £6300 a year. I guess that salary would seem reasonable?
              Let's be honest. She won't be lifting a finger the company will she? So why is 6300 a business justifiable number? BUT.. If you are in for a penny you might as well take the lot. Just be aware paying her because your accountant said you could and also just meet a threshold else rather than actual doing something is a piss take. Every married contractor couple that is eligble to do it does it though so I'm just yanking your chain a bit.

              How long have you been giving her dividends without making her a director and was it the same accountant that set this up in the beginning?
              Last edited by northernladuk; 9 April 2019, 20:31.
              'CUK forum personality of 2011 - Winner - Yes really!!!!

              Comment


                #8
                Originally posted by northernladuk View Post

                How long have you been giving her dividends without making her a director and was it the same accountant that set this up in the beginning?
                I have been giving her the dividends for around 4 years. Now it's a new accountant that recommended making her a director and paying her a salary. Btw, we are not married, hopefully that won't be an issue?

                Comment


                  #9
                  For facks sake. It's an issue alright.

                  spousenoun [ C ]

                  US /spɑʊs/

                  a person’s husband or wife
                  Last edited by Contractor UK; 25 May 2019, 13:26.
                  'CUK forum personality of 2011 - Winner - Yes really!!!!

                  Comment


                    #10
                    I'm not sure that article is entirely helpful. That second paragraph:

                    Paying a salary also entitles a spouse to benefit from Section 1030A dispersals (formerly ESC C16) and entrepreneur’s relief.
                    Really?

                    Following the Arctic Systems ruling, spouses and civil partners receiving ordinary shares are exempt from the settlements legislation. They can legitimately receive dividend income without it being taxed as if part of the income of the main fee earner, as would be the case if the settlements legislation applied.

                    But the spouse or partner may not be a shareholder and must be being paid a legitimate salary in line with the duties they perform for the contractor’s company. This salary is outside the scope of the settlements legislation.
                    I don't know what the author is trying to communicate with 'may not be a shareholder' but it's absurd following the preceding paragraph.

                    Fact: spouses and partners can be shareholders and they can be employees, and the two are distinct. They can also be directors, whether they are shareholders or not, and whether they have any other role and an employment contract or not. I wouldn't be citing that article, the author is either factually mistaken or using very confusing wording on at least two points.

                    OP: This has been discussed at some length. A salary you pay has to be legitimately for business purposes. You can't pay a partner £50 / hour to do bookkeeping, they'll say that's not for business purposes. You can't pay £X and then divide £X by the minimum wage to arrive at a number of hours worked, they'll say there's no way she's working that much. So forget getting to 16 hours / week for her. It's not going to happen if you have a standard contractor's business. If you want her to have 16 hours, you are going to have to expand your business to do something that will actually take her that much time, or close to it.

                    You CAN make her a director. Then, paying her £12K is probably challenge-proof, because you are compensating her for legal responsibilities / liabilities, and HMRC are unlikely to be able or want to challenge a salary of £12K for that.

                    Whether or not you are married has no bearing on whether or not she can be a director and be paid a salary. You could make your neighbour's 3rd cousin a director if you wanted. It does have bearing on the settlement's legislation and gifting of shares, but if she was a shareholder from the start that helps, you may be ok.

                    One does wonder, if you trust her enough to give her half your business and half the dividends and make her a director and sleep with her, why don't you just put a ring on her finger? She'd probably like that. That's not relevant to your original question, of course.

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