Do I have to pay tax on dividends?

trailingspouse

If she's a 50:50 shareholder, then she's a 50:50 shareholder. What she does with her share of the money is entirely up to her. If you are looking at it all as 'your' money, then you should remove her as a director, pay all the dividends to yourself, and take the sting on the tax.

Oh, but you need her to take some of the dividends to save on the tax. I get it. But you can't have it both ways.

polymaff

uknick wrote: »

Would you be caught under the settlements legislation

Unless the wife has, and has had, a demonstrable and proportional role in the business it sounds like a solid candidate for a settlements claim by HMRC.

Reason123. It sounds like you haven't a clue how these matters work. You'll be a lamb led to the slaughter. Learn - before you're taught a lesson.

TheCyclingProgrammer

polymaff wrote: »

Unless the wife has, and has had, a demonstrable and proportional role in the business it sounds like a solid candidate for a settlements claim by HMRC..

Not sure why the wife needs to have any proportional role in the business at all - it doesn't really have anything to do with it. People can and do have shareholdings in businesses they have absolutely no involvement with on a day to day basis.

Subject to meeting the conditions of the spouse exemption under s626, an outright gift of shares between spouses will not usually be caught by the settlements legislation. Arctic settled that 10 years ago (see Example 6 in the above linked TSE manual).

polymaff

Many seem to think that Arctic Systems delivered a mortal wound to HMRC - but since then HMRC has succeeded against many parties attempting to evade tax by diluting distributions.

TheCyclingProgrammer

polymaff wrote: »

Many seem to think that Arctic Systems delivered a mortal wound to HMRC - but since then HMRC has succeeded against many parties attempting to evade tax by diluting distributions.

That's a big claim. Citation needed.

The Arctic Systems case is not a panacea and a lot of people misunderstood the details of the case and what its outcome meant. There ARE circumstances in which a husband/wife shareholding could be caught by the settlements legislation and I've outlined some of those above, but I'm unaware of any cases HMRC have challenged since Arctic other than a few notable cases regarding dividend waivers.

However its pretty established that a gift of ordinary shares from one spouse to the other, with all rights to capital on winding up (so its not just a right to dividend income), with no conditions attached to the gift, whilst a settlement, will not be taxable on the settlor under s624 of the settlements legislation, due to the effects of s626.

chrismac1

The logical thing to do here is to convert your wife's shares in A Ordinary shares with full voting rights. You can then declare dividends in whatever ratio you desire.

There are many ways of making it very difficult for HMRC to get lucky with any of the scary stuff in this thread. Make sure your wife has a knowledge of what the company is up to. Ideally make her Company Secretary so she can sign off the corporation tax return. Tough for HMRC to argue she has no involvement when she's the one submitting the tax to them!

TheCyclingProgrammer

chrismac1 wrote: »

The logical thing to do here is to convert your wife's shares in A Ordinary shares with full voting rights. You can then declare dividends in whatever ratio you desire.

There are many ways of making it very difficult for HMRC to get lucky with any of the scary stuff in this thread. Make sure your wife has a knowledge of what the company is up to. Ideally make her Company Secretary so she can sign off the corporation tax return. Tough for HMRC to argue she has no involvement when she's the one submitting the tax to them!

Also making her potential eligible to claim entrepreneurs relief in the future if there is any significant capital distribution to be made on winding up! That is, of course, assuming the government doesn't find away to restrict its relief in its endless attack on small businesses and freelancers.

polymaff

TheCyclingProgrammer wrote: »

That's a big claim. Citation needed.

I've not the time to root out all the cases, but will an icaew quote do?

"HMRC subsequently won other cases involving husband and wife businesses with income splitting arrangements where the situations were not identical to the Arctic systems case."

TheCyclingProgrammer

polymaff wrote: »

I've not the time to root out all the cases, but will an icaew quote do?

"HMRC subsequently won other cases involving husband and wife businesses with income splitting arrangements where the situations were not identical to the Arctic systems case."

No, it won't do and in any case, the quote above clearly says "where the situations were not identical to the Arctic systems case". If you're going to make such a claim, I think you need to back it up with something concrete.

I've done extensive research on settlements legislation and am also a member of IPSE who have a tendency to keep on top of this kind of thing and I'm aware of no significant cases that have altered any of what was established in Arctic. I cannot find anything referenced on AccountingWeb, nor the IPSE news/caselaw forum relating to these "other cases". I do regularly search for any new cases HMRC have pursued and have not come across any.

The quote above is likely referring to the waiver cases which I've already mentioned (Donavan & McLaren vs HMRC, Patmore vs HMRC). The latter was unusual and I think HMRC only partially won that one.

I'm not trolling here, if there are other cases I'm not aware of I would definitely like to know about them. All the evidence points to HMRC simply not being that interested in pursuing settlements cases except in clear cases of abuse. I suspect most of the enthusiasm disappeared with the last Labour government and the aborted Family Business Tax. There are much easier targets (e.g. public sector contractors and the forthcoming IR35 changes).

polymaff

polymaff wrote: »

I've not the time to root out all the cases, but will an icaew quote do?

"HMRC subsequently won other cases involving husband and wife businesses with income splitting arrangements where the situations were not identical to the Arctic systems case."

TheCyclingProgrammer wrote: »

No, it won't do and in any case, the quote above clearly says "where the situations were not identical to the Arctic systems case". If you're going to make such a claim, I think you need to back it up with something concrete.

Oh dear - but that is my very point.

Enough.