A client has asked me to set up a new company – it is clearly for tax avoidance purposes, but I am struggling to actually come up with a reason why it can’t be done.
Basically the company will hold a minority investment in another company. This investment may or may not pay dividends / be sold at some point in the future. He wants to put his wife on the payroll of the new company and start paying a salary under the taxable allowance (£11,850 – there will also be no NI to pay due to the employment allowance, as wife will not be a Director). This salary will make a carried forward loss to then offset against any future income from the investment. Obviously no cash is generated yet, so the salary being paid will just offset against the Directors Loan account.
So basically a way of using his wife’s tax free allowance now to offset against any future profits, so none of it is wasted.
The wife’s job title will be ‘investment manager’ or something like that to ensure the salary is a proper business expense.
Is this just good planning, or should I decline?