Management / Service charges between companies and getting them right
I'm hoping you will be able to help on this... And I realise that I may be opening a can of worms.
I do want to avoid the morals on paying tax etc, because I believe that is a separate issue, and is down to each taxpayer involved to make their decision.
I consider my job is to give them options, all legal and within the rules, and then carry out their instruction. For whatever circumstance, the cheapest option may not be the best option, and I would advise in hat way.
My client has one company that owns two other companies 100% and 25% of another.
He is sole director of all 4 companies.
He would like to make a charge to each of the three companies owned by the 'holding' company, instead of taking any salary from each company.
He would then want to take a salary and dividends from the holding company when applicable.
My question is basically, is this possible. Does the holding company need to be a corporate director for this to be possible, or is it ok for the person to be director, but for a charge to be made to each company?
All companies are well within the small profits rate, and so there is no possibility of suggesting that this, or the amounts involved are to bring down the marginal rate of tax.
He says, and I see his point, that it would then show more realistic levels of profits in each company, and would be based fairly on turnover, or the business size in some way.
It does obviously reduce PAYE taxes, both tax and Ees and Eers NI, but he argues that he could theoretically do this by taking a minimal salary from one company, and only taking dividends from the others.
Any guidance or thoughts on this would be very gratefully received.