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Is this ok, or too aggressive?

Tax avoidance

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?

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07th Jan 2019 10:22

"Is this ok, or too aggressive?" No, just stupid

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By DJKL
07th Jan 2019 10:36

If the investment may pay dividends to the company holding it what use are losses in said company, surely the dividends are FII?

Not convinced by the W & E re the management expenses anyway.

Why not just have wife holding the investment as an individual?

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07th Jan 2019 11:13

Tax avoidance is legal.

Claiming tax relief for a cost not eligible for relief is tax evasion, which isn't legal.

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07th Jan 2019 11:17

Client sounds like a confident idiot. They are the worst, aren't they?

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By Maslins
to andy.partridge
07th Jan 2019 12:59

Quote:

Client sounds like a confident idiot. They are the worst, aren't they?


I agree. Take a minute to explain why his plan is flawed. If he's still insistent it's a brilliant idea, IMO wish him well but decline to act.
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07th Jan 2019 11:38

Giving the wife a job title does not legitimise her salary, which sounds bogus, frankly.

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07th Jan 2019 11:38

That's really quite dumb

Id take the job myself, on a "no advice" basis and enjoy the point at which the penny drops he has been paying you for no reason, and he has gained no tax advantage, and indeed probably the opposite in the event of this investment paying out.

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to ireallyshouldknowthisbut
11th Jan 2019 15:23

"he has been paying you for no reason".
Oh no he hasn't - he is paying you to give him advice that stops him from getting in a right mess with his tax affairs.
That is often money very well spent.

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to ireallyshouldknowthisbut
11th Jan 2019 15:23

duplicated

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07th Jan 2019 13:39

Why not just pay wife from 1st company, which is presumably paying CT, so that wife's salary would be allowable for CT now- much better from a cash flow perspective.

What is Company 2 going to be doing? If trading, then if Company 1 satisfies the holding rules, then substantial shareholder relief would be available on a subsequent sale of its shares
Alternatively If wife were a Director of and shareholder of Company 2, even if paid a nominal salary, then entrepreneurs relief could be available.

I don't understand the references to the salary below which NI is payable for Directors.; is there a confusion with other legislation concerning benefits or tax filing obligations?

The figure below which NI is not payable is £8424 for all employees, including Directors.

What about the additional compliance costs for a second company?

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By Matrix
to Montrose
07th Jan 2019 13:45

Why does paying from a different company make the expense allowable?

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to Matrix
07th Jan 2019 13:54

Prima facie it doesn't. A reasonable salary say as a Director payable be a well established company[Company 1], is less likely to raise eyebrows.

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to Montrose
08th Jan 2019 08:20

The OP says that the wife won't be a a director.

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08th Jan 2019 10:03

Well, good luck with claiming that salary as a w+e company expense.

Let us know how you get on.

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11th Jan 2019 10:47

So now it's not people taking advice from the bloke in the pub, it's been upgraded to taking advice from the couple drinking prosecco in the bar at M & S.

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12th Jan 2019 10:23

Tax is an expense. Your client has a duty to provide for his family. The less tax they pay the more for his family.

Making best use of available personal allowances seems sensible.

What are the costs and risks with the proposal?
Can the claim to Employer Allowance be challenged as associate with Co1?
Is there taxable income in co2 to set against salary?
Is wife’s wage w&e ?
What is cost of setting up and running Co2?

Can same result be achieved in better way?

As regards whether you should act - if you are not comfortable then walk away

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