Hope someone can help, simple scenario seems to have expanded to various taxation issues.
My client has been separated from her husband and proceeding for divorce, of course she requires child maintenance for the 2 children and was unable to reach an agreement, so the CSA was involved and the outcome was that he was ordered to pay £5 and Nil due to his earning after deductions.
The situation is as follows husband is a solicitor who prior to the split was working abroad but came home to save his marriage (his words not my clients) he moved from his matrimonial home and he says he was unemployed for a while and to acquire work formed a Limited company as no jobs were available for his expertise.
Of course, small income £585 a month, applicable deductions £500 pension contribution, “ leaving £85 a month for CSA to assess” He has a moderate to good life style?
Drawings and Dividends are not treated as Income for CSA. Limited company formed as original application made, we have to provide additional information for appeal to suceed.
Limited Company shows net P & L balance at end of 1st year in access of £15K after tax and dividends in the year. Debtors and substantial bank balance £36K Overall creditors £21K assuming no PAYE, accountant’s fees and possible vat, majority of directors and family loans repaid, Corporation Tax provision is the balance, estimated at a minimum of £5K and £18k maximum. He is the sole director/employee.
Additional information:-
One solicitor firm is the sole or main client for the majority of income.
Retired mother is a 43% share holder.
Accountants for the company have confirmed drawings will be converted to dividends prior to year end
CSA will assess any other income received.
I think his Income should be assessed under IR35, this would eliminate dividends and give a fairer figure for CSA
Assume dividends are paid, this doubles the £35K before HR tax kicks in. If mother gives dividend back to son.IHT max £3000 gift a year, would this be covered by excess monies from income as a way round this limit for IHT
Final question. Does the settor rules apply to Mother and son. The same way as a one man band company where the wife and husband are Shareholders.
Related resources
Replies (2)
Please login or register to join the discussion.
OK I will bite
Lets look at this rationally - you are too close to the situation (are you the lady's new man?) and need to get a third party experienced in these sort of scenarios involved ASAP. Have a look at the Child Maintenance books - you will see that there are rules about working for your own company that mean the company's income is assessed as your own. I would not claim to be an expert in these sort of situations, just personal experience!
Nothing in the tax issues you raise is really relevant here - setting up a limited company to trade is very common , and indeed the only sensible way of trading these days, IR35 is a matter of contract law not CSA and settlor rules not relevant if the funds for the share subscription were provided by mother from personal resources.
You also say "of course the lady required child maintenance" - is there any reason why she should not go out and work and provide for her own children?
Having said all that, good luck to your client - no-one likes to see someone who is earning close to £100,000 a year (based on the upper CT estimate)not paying to support their children!
Thanks for your reply, I am her accountant not a new man in her life? Yes she does work to provide?
£43 for the share capital input to receive a 1st dividend of £6k plus (Mothers share) pretty good return for the investment.
Seen some bad tax planning in my day? which has resulted in creating other problems. Thinking out the box. Husband, wife companies to maximise income. Mother is retired, just seemed to me another persons basic tax band to use? I must be getting cynical in my old age. Morally I don't think its right that someone should father children and not provide for them?
Thank you for the advise for child maintenance, hope personally it was not too painful