How close to the wind do you sail?

I have just lost a small growing business to an aggresive National firm and I want to learn from it.

Last year I discussed with the client the possibility of converting to a limited company since he looked as though he would be paying tax at higher rates in the current year. We were to consider the position again when we knew how well he was doing this year but unfortunately an introduction through a friend of his has seen me lose the client due to the level of savings being promised (current year profits could be c£70,000). It is not a one man service company.

It has been proposed to him that a new company is set up with ownership split 50/50 with his wife. Salaries will be set at minimum level for NI purposes, directors' loan withdrawals will be made during the year and dividends taken post year end to clear any loan account balance. The wife will do nothing in or for the business.

I have a tax partner with a conservative view of these types of arrangement and as a consequence we would not normally do anything as obvious or as close to the limits but I don't believe that I can ignore that fact that this type of arrangement is being actively promoted to my clients.

What views do others have and is there a danger that this type of arrangement will come under attack?