Self Assessment tax return for £2000 dividend allowance?

[bobbo mcbobbo]

My wife is a shareholder of my Ltd company and will be paid her £2000 in dividends for the 19/20 tax year. Does she need to fill out a self assessment tax return for this (even if it's tax free)? She is employed where she pays tax under PAYE and has no other income other than this £2000.

 

[Rawlinson Pryde]

https://www.gov.uk/check-if-you-need-tax-return

 

[bobbo mcbobbo]

Amazing, I guess not then, thanks!

 

[Mr D]

Usually when they want you to complete a tax return they will write asking for one - so they may do so in the future.
Even though not having tax payable.

 

[jimbof]

My wife is a shareholder of my Ltd company and will be paid her £2000 in dividends for the 19/20 tax year. Does she need to fill out a self assessment tax return for this (even if it's tax free)? She is employed where she pays tax under PAYE and has no other income other than this £2000.

Out of interest, how have you structured it so she only gets £2000 exactly?

 

[Alan]

Out of interest, how have you structured it so she only gets £2000 exactly?

You would normally have A & B class shares and the company articles will allow flexibility over how dividends are distributed. Certainly that is how I have had things structured.

 

[jimbof]

You would normally have A & B class shares and the company articles will allow flexibility over how dividends are distributed. Certainly that is how I have had things structured.

So how does it actually work in practice? Would one of the classes be preference shares? My understanding of preference shares was that they receive first dibs on dividend up to their preference amount which is set as a percent of the share value. Unless you put in a load of money buying those shares, doesn't that preference % end up having to be 100% or more? Is that legit?
Or is it done some other way?

 

[MikeJ]

One shareholder can also waive dividends, but there are drawbacks...

https://www.taxinsider.co.uk/divide...ver can apply for,not recommended (see below).

 

[jimbof]

Thanks. These all sound like good ways to get in HMRCs crosshairs for not huge benefit. I'd imagine dividends happening to be at exactly the tax free allowances would be a brilliant thing to datamine through Companies House records to find folk who might be close to the wind... These all end up looking like such obviously synthetic structures for one purpose only.

 

[Mr D]

Thanks. These all sound like good ways to get in HMRCs crosshairs for not huge benefit. I'd imagine dividends happening to be at exactly the tax free allowances would be a brilliant thing to datamine through Companies House records to find folk who might be close to the wind... These all end up looking like such obviously synthetic structures for one purpose only.

How you structure your tax affairs to benefit you is up to you.
If HMRC do not want someone paying £2k dividiends then they need to change the limit.

 

[jimbof]

How you structure your tax affairs to benefit you is up to you.
If HMRC do not want someone paying £2k dividiends then they need to change the limit.

Did you read the info at the link provided by previous poster? It went into detail about how HMRC had previously won cases on the basis of the deferred dividends strategy which you would think was your choice, clearly being deemed as not (fully) being up to you where it appears it is being used to deprive the revenue of revenue

Conclusion
Dividend waivers are relatively straightforward devices that can stop dividends being paid. But HMRC can, and will, use the settlements anti-avoidance legislation to treat some of the waived dividend as income ‘belonging’ to the person waiving entitlement, if they can show that he or she still benefited from the money while less tax was paid overall – typically with waivers in favour of spouses who pay tax at lower rates. It is recommended that prospective waivers be discussed with one’s adviser beforehand.

An alternative to waivers is simply to issue different classes of shares, so that different shareholders hold different classes, on which different (or no) dividends are payable. But this does not necessarily prevent HMRC arguing that there has been a settlement if, say, one class/shareholder never receives dividends, and there is no commercial reason why.

Practical Tip:
The best approach is simply to ensure that shareholders have the right proportion of shares in the first place!

 

[Mr D]

Did you read the info at the link provided by previous poster? It went into detail about how HMRC had previously won cases on the basis of the deferred dividends strategy which you would think was your choice, clearly being deemed as not (fully) being up to you where it appears it is being used to deprive the revenue of revenue

If going into dividend waivers then yes asking for trouble. Hence I didn't mention them.
You know that the directors are not required to pay out all money the company holds as a dividend payment?

 

[jimbof]

If going into dividend waivers then yes asking for trouble. Hence I didn't mention them.
You know that the directors are not required to pay out all money the company holds as a dividend payment?

Sure, the other 2 legitimate ways out that come to mind are pension and salary. Salary seems rarely to be advisable over dividends unless you have to, and pension of course depends on affordability (I need to eat today, not in 20 years time...!). I currently have a fair chunk of change sat in the business that I wouldn't want to lose the ability to spend if I had to. I'm leaving it in the business at the moment so as to not crystallise the tax position.

The wife does have some (not all) available dividend allowance, so it is of some interest if there is a way of doing this that isn't likely to arouse suspicion and a costly tax investigation (nothing to hide, my business is straightforward, but I don't have the time to argue the toss with the taxman).

It sounds like the waivers aren't a good idea from this perspective at all.

If you have some useful advice on ways forward maybe you could suggest what those look like.

 

[Mr D]

Are you looking to disperse all available profit at one time or are you looking at only part of profits paid out as dividends in the year?

 

[jimbof]

I typically prefer to pay out part of the profits several times throughout the year, leaving the business with a healthy safety net in the account - that is the way I operate at present.