My client is a small Ltd Co. he issued 100 shares to 3 three shareholders: 40,30,30. He now realises he needs to get more money out of the ltd Co than the share split as he is the only one working FT for the Co and the small directors salary isn't cutting it. How do I issue new shares in a different class so I can declare a dividend for just the FT worker. (clearly this would need to be formally agreed via minutes etc)
Thank you in advance.
Replies (15)
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So ...
... he's doing more work for the company, and he wants to reward that additional effort by payment of dividend? Hmmm..... better hope that a zealous Inspector isn't reading this.
If he isn't satisfied that his small salary is sufficiently rewarding him why doesn't he just ask the other shareholders if they wouldn't mind if he increased it?
Well if there are no profits there can be no dividends and therefore surely the need to negotiate a higher salary - NI or no NI - is a no-brainer.
Dividends
Well if there are no profits there can be no dividends and therefore surely the need to negotiate a higher salary - NI or no NI - is a no-brainer.
The OP says it is starting to make profits (money), so dividends can be paid as long as management figures support the amounts.
I think the main question to ask is what relationship exists between the shareholders? Are they Husband, wife and child or a group of non-associated people? Then it can be determined what is the best way forward.
Not quite
The OP says it is starting to make profits (money), so dividends can be paid as long as management figures support the amounts.
Losses made before the profits appeared have to be made good first of course.
Provide details needed
As already asked, who are the other shareholders and how are they related to the one seeking extra cash? In addition, what "small salary" is the director currently getting paid?
Because, whether you do it by dividend waiver or a new class of share, this is going to look like disguised remuneration. The one person working full-time in the business receiving more money is going to look suspicious. Whether HMRC will be able to take action on those suspicions will depend on the setup.
Dividend waivers
There is no reason why a dividend waiver cannot be agreed but you need to be sure that you get it right.
£2000 is too small a figure to risk all the problems that can arise.
If your client insists on going down this route I suggest that you have a chat with one of the tax help lines to ensure that your paper work is in order.
Problems and paperwork
Tosie correctly advised that dividend waivers are not straightforward and to succeed you need the correct paperwork etc.
The subject of problems relating to Dividend Waivers comes up on Any Answers quite often.
The article link below pulls together the problems under one heading, listing instances where HMCR might become interested. Under the Comments part there is a checklist of what needs to be done should you be considering recategorising the shares.
https://www.accountingweb.co.uk/topic/tax/dividend-waivers-get-details-r...
Alphabet Shares - Employment Related Securities
Whenever there is a discusison regarding the creation / use of Alpahabet Shares to pay varying amounts of Dividends, there seems to be a general concensus that their use is acceptable to HMRC however (although I am far from being an expert in this field) I understood that the Employment Related Securities legislation was meant to stop such "abuses". Can anyone shine any light on this?