settlements rules - sanity check

settlements rules - sanity check

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Just reading up on this and was wondering if there are any quick checklists or rules we should follow when giving tax advice for small ltds, often one man band splitting dividends with lower income wife.

does the partner need to also be employed? do the shares need to be gifted or paid for? do they need to draft up minutes or other legal paperwork to cover themselves?

one reason i had from a client is my dad paid for my uni degree now it is time to pay him back. or similar

many thanks in advance

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By Vaughan Blake
02nd Dec 2011 19:04

Welcome to the minefield, be careful where you tread!

On one hand we have the strict law, dividends reward shareholders who are investors in the business.  Salaries are for employees who work in the business.  People can be either or both.

Then we have the reality that HMRC hate small one man bands who set up as ltd companies and then splits his income with his spouse where the spouse has little or no involvement in the business.

If the business is little more than an "employment" (IR35) then that adds to HMRC's intense dislike.

If, however, the business is say a corner shop and Mr & Mrs Client both work more or less equally in the business and share profits equally (via divis or salary) then HMRC will leave them alone.

In the Dad & son case, is Dad providing some mentoring?  If so a salary/consultancy fee is not unreasonable. If he has provided some working capital then a share issue and dividends would also not be unreasonable.

My basic rule is "if it looks like a "mickey take" then don't do it.

Assuming it is not a mickey take company then I would suggest that both spouses subscribe for the shares.  Paperwork/minutes should be the same as for any other company, no more, no less. 

PS I always think that you should not start with a checklist as it stiffles  thought!  By all means finish with one to make sure that you haven't missed anything though.

 

 

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Replying to carnmores:
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By SE_Confused
02nd Dec 2011 20:41

Thanks, you are right. minefield....

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