Dividend Classes

chrismac1

I suspect WOM could be an HMRC stooge this is not a first offence.

chrismac1

To reassure anyone who thinks this is in any way dodgy it is worth noting that lots of high profile companies have different share classes - HSBC and Royal Dutch Shell to name but 2. In my view their use of these different classes and in some cases the deliberate deprival of "normal" shareholders' rights is a great deal more questionable than Mr. & mr.s Jones, the victims of HMRC in Arctic Systems. But why bother going after the big guys when you can bully some small fry husband and wife company?

Dead_keen

chrismac1 wrote: »

On the contrary your accountant is pizss poor. I am clearly a different sort of accountant, but my clients must have declared over £1m in different share classes over the past 5 years. Plus my wife has some shares in my own company and has had a few £100k on them, when my son is 18 he will be getting some too.

I'd be interested on your take on this link bearing in mind HMRC's attitude to the width of s421B(3) and the associated persons provisions: https://www.gov.uk/hmrc-internal-manuals/employment-related-securities/ersm60030

I'd also be interested on your take on the DOTAS Financial Products Hallmark and GAAR.

I'd also be interested in what you think the marginal tax rate would be if HMRC successfully challenged this (e.g. 45% tax on the step up, 2% NIC, the s222 tax charge, the employee's NIC on the s222 tax charge plus the tax on the dividend). From memory, this is just over 105% but then I haven't added employer's NIC, interest or penalties to that.

So while lots of small companies do this, it is a car crash waiting to happen.

Listed companies with two classes of shares are very different in that they don't say "oh, let's pay Sarah a dividend of £27,000 because that just enough to stop her paying higher rate tax but we'll pay Steve £34,000".

Wayne_O_Mac

chrismac1 wrote: »

I suspect WOM could be an HMRC stooge this is not a first offence.

Not for the first time, you are completely wrong.

chrismac1

Sorry, albeit you do a great impersonation of one.

Pennywise

Dead_keen wrote: »

I'd be interested on your take on this link bearing in mind HMRC's attitude to the width of s421B(3) and the associated persons provisions: https://www.gov.uk/hmrc-internal-manuals/employment-related-securities/ersm60030

That link relates to "employees". Directors aren't employees, they are officers of the company. A completely different legal meaning that even HMRC accepts! They are exempt from national minimum wage (as accepted by HMRC) because of their status as officer not employee.

Maybe as long as 10 years ago, people were telling private limited company owners it was risky to pay low salary under paye and unrealistic high dividends because they could be caught by the employment securities legislation! That will be tens/hundreds of thousands of people who are directors/shareholders of their own companies who are taking dividends instead of "realistic" wage levels.

If HMRC wanted to challenge such a common practice, they would have done so by now and changed the law specifically against it and alphabet shares. It's nothing new!

There HAVE been court/tribunal cases, as mentioned by ChrisM, that have been brought by HMRC to challenge dividends paid to non fee earning spouses and have lost. There was also a case where a married couple regularly transferred shares between them to get the "optimum" dividend share each according to their relative incomes over several tax years. Again, HMRC lost.

I can only imagine how director/shareholders feel today - those who heeded dire warnings a decade ago that they shouldn't pay excessive dividends because HMRC may not like it, and instead paid most of their drawings out as wages under PAYE. They'll have paid tens of thousands more than they needed to under PAYE, compared to other similar set ups! I hope their accountants have good PI insurance in place to protect them against claims of being over cautious!

chrismac1

David keen - one of the main reasons why PLC's have different share classes is precisely tax avoidance. So in the case of Royal Dutch Shell PLC, for example, that is an Anglo-Dutch oil major with headquarters in Rotterdam and London and quotes on the FTSE and Amsterdam.

I believe the principal reason for the A and B shares is precisely the different tax treatments of dividends in the British and Dutch jurisdictions. If you look closely at other PLCs you will find very similar reasons. I don't know for sure as I have never held shares in HSBC - I have in RD Shell - but I suspect one reason for the A and B in HSBC is the two different shareholder bases in Hong Kong and London and the tax treatment of dividends.

In principle I see no difference between this share structure and the reason for it and the one involving myself and my wife in my own company. In principle if HMRC want to challenge this sort of thing I say start at Royal Dutch Shell and work your way down!

Dead_keen

Pennywise wrote: »

That link relates to "employees". Directors aren't employees, they are officers of the company. A completely different legal meaning that even HMRC accepts!

Have a look at s5 ITEPA. For the legislation I linked to, a director is an employee.

Pennywise wrote: »

There HAVE been court/tribunal cases, as mentioned by ChrisM

Yes, she or he has mentioned Arctic Systems. I remember watching Mr Gammie in the High Court and also remember discussing it with one of the special commissioners. I don't remember Chapter 3B of Part 7 being referred to (that's the legislation my link refers to) but that is probably because Chapter 3B was first published more than six years after the last year covered by that case.

Pennywise wrote: »

They'll have paid tens of thousands more than they needed to under PAYE, compared to other similar set ups! I hope their accountants have good PI insurance in place to protect them against claims of being over cautious!

I wonder in people said the same in the 2000's about "accountants" who said it wasn't a clever idea to be paid with a loan from an EBT? How many lives are now being wrecked because of people telling them that loans from an EBT were "approved" or because everyone does them? I think HMRC currently think that there are 40,000 or so people who should be worried. But that's because many thousands have already settled. I wonder how many will lose their homes? Do you know?

Dead_keen

chrismac1 wrote: »

one of the main reasons why PLC's have different share classes is precisely tax avoidance. So in the case of Royal Dutch Shell PLC, for example, that is an Anglo-Dutch oil major with headquarters in Rotterdam and London and quotes on the FTSE and Amsterdam.

Yes, RDS does this because of withholding tax on some dividends. But the dividends paid per share are the same.

chrismac1 wrote: »

In principle I see no difference between this share structure and the reason for it and the one involving myself and my wife in my own company. In principle if HMRC want to challenge this sort of thing I say start at Royal Dutch Shell and work your way down!

I'm sure the FTT will see no difference at all...

Pennywise

[QUOTE=Dead_keen;72303976I_wonder_in_people_said_the_same_in_the_2000's_about_"accountants"_who_said_it_wasn't_a_clever_idea_to_be_paid_with_a_loan_from_an_EBT?_How_many_lives_are_now_being_wrecked_because_of_people_telling_them_that_loans_from_an_EBT_were_"approved"_or_because_everyone_does_them?__I_think_HMRC_currently_think_that_there_are_40,000_or_so_people_who_should_be_worried.__But_that's_because_many_thousands_have_already_settled.__I_wonder_how_many_will_lose_their_homes?__Do_you_know?_[/QUOTE]

I'm not worried about that. Most real accountancy practices stayed well away from the EBT schemes because of the risk. It's a completely different scenario. Reason being that it turned taxable income into non taxable income allegedly. Dividend splits are different because they remain taxable, just on a different person. You're comparing apples with pears.

It was actually "non accountants" who did most of the marketing. Often subsidiaries of banks, often "asset management" firms, but very, very, rarely did I see any firm of Chartered accountants offering them. Perhaps those at risk of losing their homes should have checked out the schemes properly before going in - a proper chartered accountant would have almost certainly told them of the risks.