Going inside IR35 mid tax year - can I reassign company share %?

[BlackCoffee]

Sorry if this is a daft question.

The scenario is a Limited Company contractor on a decent day rate accepting an inside IR35 position from January 2020. I'm pretty sure that 3 months of PAYE + 9 months of Dividend Tax will be a brutal tax bill because dividend tax is top sliced, losing all of the 7.5% benefit.

To mitigate it slightly is it allowable to reapportion the company share split % to be say 90% second shareholder? If done now it would knock the potential dividend paid amount down by almost 1/3rd for the remaining period of the calendar year until the new position starts.

Basically an interesting inside-IR35 job has come up but I am wondering if accepting it this time of tax year is a bad idea.

Thank you.

[Paralytic]

Speak to an accountant. Potential issues

- Any CGT impact of reapportioning shares, even to a spouse, because
- Will HMRC see the transfer of shares as purely as a method of avoiding tax? (because it is)

I assume the issue is that you've already issued the dividends for this year that will take you over the threshold if you take on a PAYE role?

Have you spent the dividend? Any option of rewinding things? eg, so that a dividend was not declared - any payment to you could be reclassified as a directors loan and repaid - then leave the money in the PSC account until such time you're not in PAYE. Not a recommendation - there may be some issue with this.

Did I say speak to an accountant?

[GhostofTarbera]

Accepting the same role that’s inside IR35 - consider the rest of your contract inside IR35 also - HMRC will


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[northernladuk]

- Will HMRC see the transfer of shares as purely as a method of avoiding tax? (because it is)

This. I'd worry if he does speak to an accountant who says it's OK.

[BlackCoffee]

Directors Loan - hadn't thought of that. That looks like a simpler option. I will talk to the accountant thank you.

Speak to an accountant. Potential issues

- Any CGT impact of reapportioning shares, even to a spouse, because
- Will HMRC see the transfer of shares as purely as a method of avoiding tax? (because it is)

I assume the issue is that you've already issued the dividends for this year that will take you over the threshold if you take on a PAYE role?

Have you spent the dividend? Any option of rewinding things? eg, so that a dividend was not declared - any payment to you could be reclassified as a directors loan and repaid - then leave the money in the PSC account until such time you're not in PAYE. Not a recommendation - there may be some issue with this.

Did I say speak to an accountant?

[craigy1874]

This. I'd worry if he does speak to an accountant who says it's OK.

I can't see what the problem is with a transfer of shares as long as the new ratio only applies to future dividends and you are not backdating anything.

[Amanensia]

If the gift is an absolute gift to a spouse (specifically a spouse who qualifies for the spousal exemption, which requires cohabitation and possibly some other conditions) and consists of ordinary shares, I’m struggling a little bit to see the problem, even though it’s clearly in order to reduce tax.

Isn’t this what Arctic Systems was all about?

I am sure lots of people will be mulling over this kind of option so if anyone can clearly state what rules it might fall foul of, it would be most useful.

[northernladuk]

If the gift is an absolute gift to a spouse (specifically a spouse who qualifies for the spousal exemption, which requires cohabitation and possibly some other conditions) and consists of ordinary shares, I’m struggling a little bit to see the problem, even though it’s clearly in order to reduce tax.

Isn’t this what Arctic Systems was all about?

I am sure lots of people will be mulling over this kind of option so if anyone can clearly state what rules it might fall foul of, it would be most useful.

It's nothing like Arctic Systems. That was about husband and wife share arguing her input and duties were worthy of her income. Fudging that set up to do nothing more than minimize tax is taking it one step too far and is exactly what HMRC are looking for when they coined the term aggressive tax avoidance.

Maybe... just maybe.. using craigys thinking, it was a one off for business reasons it might be ok but it's unlikely the OP will be in an inside role for ever and this is a short term knee jerk reaction. Within 12 months he's going to be wanting to change it back. More chance of being spotted and having to admit both changes were for tax avoidance purposes only.

We've long said changing company setups regularly for avoidance isn't advised, particularly now when HMRC know exactly why you are doing it.

[Amanensia]

It's nothing like Arctic Systems. That was about husband and wife share arguing her input and duties were worthy of her income.

Are you sure?

My understanding is that Arctic Systems was nothing whatsoever to do with whether the spouse earned her income. Indeed the gift of shares was deemed to constitute a “settlement”, but crucially the spousal exemption to the settlement rules applies, because the gift of ordinary shares (carrying full voting rights) is explicitly NOT merely a “right to income.”

I’ve asked this question of three different accountants. Two have agreed that the gift should be fine, subject to ordinary share and spousal exemption caveats. The third (my own accountant) has not yet replied. If there’s a firm link to convincing evidence to the contrary, I would very much like to see it.

[northernladuk]

I'm not sure of exactly what but it certainly wasn't about changing holding for aggressive avoidance.

I'd say remember to look longer term here. Just because the OP is taking an inside gig in April doesn't mean he'll be in one in 12 months time.