Spouse as main shareholder

[AdamB]

Hello

I was hoping to pick the brains of those with tax knowledge and kind enough to review my current situation.

I recently left a company where I was an employee and planning to now to do some consultancy work for a couple different companies as a contractor via 'my' own company. My wife is doing a PhD so doesn't use her tax allowance at all. My intention was therefore to put the company either wholly or the mainly owned by my wife, with me having a slither of ownership to use up my dividend allowance. I was then going to not pay myself a salary as I have a separate non-exec role which will use up all my tax free allowance, meaning any salary which my (or my wife's) company pays me will incur tax at 20% plus NIC from myself and the company.

The questions which I have are:
1) are there any rules which say that I have to pay myself a salary from the consulting work rather than letting everything flow to dividends?
2) are there any rules which prevent the company being owned say 95% or whatever by my wife? I need to play around with the % based on estimated consulting income, but just keen to check that I (personally, rather than my wife) dont have to own a given %.

Many thanks in advance for any input,

Adam

 

[GLAbusiness]

I assume you mean a limited company?

My case is somewhat similar as I have an income stream from a different source.

As a director of the company you do not have to take a salary.

My wife and I have shareholdings in the company. We both have £100 of class A shares. My wife also has £100 of class B shares. This was money we put into the company when we incorporated.

Since we have different classes of shares we can declare different dividend rates for each class, so we have flexibility from year to year.

 

[AdamB]

I assume you mean a limited company?

My case is somewhat similar as I have an income stream from a different source.

As a director of the company you do not have to take a salary.

My wife and I have shareholdings in the company. We both have £100 of class A shares. My wife also has £100 of class B shares. This was money we put into the company when we incorporated.

Since we have different classes of shares we can declare different dividend rates for each class, so we have flexibility from year to year.

Hi GLAbusiness

Many thanks for the reply - appreciate you taking the time to do so.

Yes, I mean as a limited company.

It sounds like based on your reply that I'm fine with what I'm thinking. In terms of the point about director not taking a salary, do I need to take a salary from the company for doing the consulting work in my role as the person doing the work, rather than in my capacity as a director? I haven't read anything which says that I need to, so just wanted to check I don't have to pay myself something!
Thanks

Adam

 

[GLAbusiness]

You need to understand that the company is a different legal entity.

So, the company does consulting for its clients The company invoices the client and (hopefully) gets paid. This is based on the terms of the contract between the company and the client.

You work for the company. The company can pay you a salary, but does not have to. The salary is not connected (legally) to the work the company did for the client. It is a matter between you and the company.


Running a limited company is not trivial. Setting up in the best way to suit your own circumstance is vital. I would strongly recommend that you get an accountant on board before you set up the company. It will save you money in the long term. If you feel that this is too costly then I suggest that your plan to set up as Ltd is ill advised.

Up to you if you want a local accountant or on-line. There are a lot of accountants on the board ( I am not an accountant). Most will be happy to chat through your plans for no fee.

Based on the responses to questions on this forum I would suggest @MyAccountantOnline but ther ar many others. If you try to go it alone without an accountant it will probably cost in the long term.

 

[AdamB]

Thanks GLAbusiness. Yes, very well aware of the basics. I'm a qualified management accountant, very financially literate and sat on various boards, including a plc. I don't however have any tax qualifications which is really where the nub of my question (about needing to be paid) lands.

UK corporate governance rules take a principle-based approach in contrast with the US which takes the opposite approach - in the US, the rules are more extensive but if you want to do something which doesn't breach any rule then you're ok. Principle-based approaches go to the spirit of what is intended. Similarly there's been greater clampdown on tax avoidance in recent years to look through various set ups and again go to the spirit of arrangements.

Hence I wasn't sure of whether HMRC sought to look through arrangements such as this and required a salary to be paid. It's an unusual corner-case given it would only cover people working as a contractor and those whose spouse didn't work so had unused personal allowance.

I've tried to find something which says that this would breach some rule but haven't been able to find anything. I also asked a (non-tax specialised) contact who worked at one of the big 4 and they werent aware of any breach, however I stumbled on this forum earlier and there were various threads adjacent to this topic, so thought I'd ask.

I'm not inclined to engage an accountant as I'd need to go through however many hours and £000s going through onboarding and intro things, before then finally speaking to a tax person, who would then rack up more costs. I'm getting to the point where further looking for a rule which this would breach has little value, so will assume its ok...even if I do think that HMRC could (perhaps possibly should?) require companies to pay someone an appropriate salary for such an arranagement.

Thanks again for the reply and again, appreciate you taking the time to do so.

Adam

 

[Newchodge]

You need to understand that the company is a different legal entity.

So, the company does consulting for its clients The company invoices the client and (hopefully) gets paid. This is based on the terms of the contract between the company and the client.

You work for the company. The company can pay you a salary, but does not have to. The salary is not connected (legally) to the work the company did for the client. It is a matter between you and the company.


Running a limited company is not trivial. Setting up in the best way to suit your own circumstance is vital. I would strongly recommend that you get an accountant on board before you set up the company. It will save you money in the long term. If you feel that this is too costly then I suggest that your plan to set up as Ltd is ill advised.

Up to you if you want a local accountant or on-line. There are a lot of accountants on the board ( I am not an accountant). Most will be happy to chat through your plans for no fee.

Based on the responses to questions on this forum I would suggest @MyAccountantOnline but ther ar many others. If you try to go it alone without an accountant it will probably cost in the long term.

The thing to remember is that IF you have a contract of employment with the limited company you must be paid at least minimum wage as you are an employee. If you don't have a contract of employment and undertake the work you do as part of your 'director's duties', you are not an employee and can be paid whatever you and the limited company agree, including nothing.

EDIT: And I think it is quite common. It applies in my business, even though I am not a contractor.

 

[AdamB]

The thing to remember is that IF you have a contract of employment with the limited company you must be paid at least minimum wage as you are an employee. If you don't have a contract of employment and undertake the work you do as part of your 'director's duties', you are not an employee and can be paid whatever you and the limited company agree, including nothing.

EDIT: And I think it is quite common. It applies in my business, even though I am not a contractor.

Thanks Newchodge. That makes a lot of sense. Certainly agree that an employment contact would change things and I dont as yet have one between me and the Ltd company (and have no plans to put one in place).

Still question whether when it comes down to spirit of the arrangement that the presence/absence of an employment contact should be meaningful, but completely see that if you use that as the basis, then its clear.

Thanks for replying.

Adam

 

[Newchodge]

Still question whether when it comes down to spirit of the arrangement that the presence/absence of an employment contact should be meaningful, but completely see that if you use that as the basis, then its clear.

There is no IF about it. That IS the basis.

 

[UK Contractor Accountant]

I'm not going into detail but income shifting has been on HMRC'S radar for a while now and is being attacked.

Google Artic Systems Ltd and S660A settlements legislation. There was even draft legislation drawn up specifically to tackle income shifting back in 2007.

 

[WaveJumper]

Get some proper tax advice, make sure you seek legal advice when drawing up your share holder agreement etc etc. You can make use of your wife's unused tax allowance. Worth remembering all fine and dandy now but unfortunately couple to split up, so who will have control of the ltd if such an event you arise.

As mentioned above shifting incomes around is on the HMRC's radar so one to watch out for. Also one last point to remember if you're looking for possible mortgage or re mortgage / finance etc in the future having a "proper" history of income may well be required.