Associate Dentist
The facts I have at present are:-
The taxpayer is an associate dentist engaged on a self-employed basis with his Principal. (Nothing unusual here- standard in dentistry)
However he's received advice from his current accountant to form a partnership with his wife, unusual as his wife is not a dentist.
This triggers the following initial concerns-
The contract can only be written between the Principal and the husband
The wife can only supply very limited contribution to the "partnership", even on a low profit share ratio.
Wording on the indemnity insurance policy and the BDA database.
(There will be many more, obviously)
Clearly the main reason is the use of the wife's tax allowance and basic rate band, as IR35 immediately threatens incorporation.
Husband a little concerned about this set-up and so am I. But has anyone come across anything like this before?
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Your doubt is with resepct to whether this is within the realms of what is acceptable.
With independent taxation and the settlement legislation in mind I do struggle with the idea.
This is a business that requires zero capital or sweat by the wife and would and should be seen as deliberate income shifting. In my opinion.
This is only really acceptable in businesses which have more to them than simply a right to receive income.
Lisler is correct
Why do people have such a problem following the rules and introducing spouses as partners/shareholders?
The rules are there, follow them and you will be ok.
Just because you don't believe it is 'the spirit in which the rules were intended' - who cares!!
I believe if you don't advise clients to do this and save tax, you are being negligent because of your own beliefs in fairness.
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I didnt say I would never do this or that it will definitely not work. I merley stated that I dont think it is very moral and In my opinion if HMRC took this case to court the taxpayer would not have a great amount of sympathy from the judge nor the general public who are not in the position to work the rules.
If you do wish to rely on the spouse exemption get out then so be it. However this is a bounteous arrangement and it is just a right to income so you will probably fail in this instance.
Maybe we should agree to disagree but out of interest I am intrigued to read the "rules" you refer to.
Why...
... is IR35 only an issue on incorporation? IR35 applies where the worker provides his services to the client via "an intermediary", which includes a partnership in which the worker (together with relatives including the spouse) is entitled to more than 60% of the profits.