Justifying uneven dividend payment between spouses

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A client is subject to a compliance check in relation to his self assessment tax returns for the last couple of years (prior to my appointment).  The area of concern is the dividends received from his company which he holds jointly with his wife.

My client has historically split the total dividend payment between himself and his wife on a basis which differs to the shareholding split on the grounds that he is semi-retired and his wife does most of the work in the company.

The dividend vouchers show the dividends declared and the dividend waiver waives the rights to a proportion of dividends.

However, they each only own 1 ordinary share so 50/50 split.  The shares do not have differing rights and as there is only 1 share, it is not possible to waive a proportion of the share holding.  The outcome could have been achieved by paying an interim dividend which they both receive and then a second interim which my client waives but I think HMRC would challenge this as the clients waived dividends were not left in the company.

Does anyone know of any ways that unequal dividend splits have been argued with HMRC or is this one where it is not even worth trying to argue a point and just pay up the additional tax whilst trying to minimise the risk of penalties.  Would you send the waivers to HMRC despite them not really adding anything?

Replies (10)

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By ireallyshouldknowthisbut
24th Oct 2017 09:51

Well your job is to argue your client's case.

Discuss with your client how pathetically weak it is and why they have been badly advised in the past (PI claim potential?) , and give the client the chose to keep arguing it or split it 50:50.

Their call, not yours.

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By JCresswellTax
24th Oct 2017 10:04

So there is only 1 share in the company?

Is that share recorded in joint names at companies house?

I must admit, I have NEVER seen a company with one share being split before.

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Replying to JCresswellTax:
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By Accountant A
24th Oct 2017 11:35

JCresswellTax wrote:

So there is only 1 share in the company?

Is that share recorded in joint names at companies house?

I must admit, I have NEVER seen a company with one share being split before.

For what it's worth I read "they each only own 1 ordinary share" as there being 2 shares. Suspect most of the responses are still valid.

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By Tim Vane
24th Oct 2017 10:13

Inform your client that HMRC are (a) in the right (b) unlikely to budge from their current position and (c) you are happy to fight for them but anticipate that it will be a costly and ultimately futile battle. Having advised all this then if the client wants to fight it then go right ahead, but bill them regularly for your time and get everything in writing. It's the client's choice whether they want to throw good money after bad and when they ultimately lose you should at least be able to satisfy yourself that you did your best, even though the client will no doubt blame you and possibly sack you. We are often held to account when we cannot dig our clients out of holes they have dug themselves.

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Man of Kent
By Kent accountant
24th Oct 2017 10:21

Good luck

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By Duggimon
24th Oct 2017 10:29

Could they only afford £1 to put in the bank account? That is the weirdest share ownership I've ever come across.

I can't see what you are going to base any argument on, if it was allowable to sign a bit of paper to say "this is how much of the dividend is taxable for each of us" and call it done then everyone would do it.

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Replying to Duggimon:
By Ruddles
24th Oct 2017 12:25

Duggimon wrote:

Could they only afford £1 to put in the bank account? That is the weirdest share ownership I've ever come across.


"They each own 1 share" or "They together own 1 share"? The OP states the former.
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Replying to Ruddles:
By Duggimon
24th Oct 2017 14:33

I think you're right, my confusion stemmed from the subsequent statement saying "there is only one share"

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paddle steamer
By DJKL
24th Oct 2017 10:33

You could just point out to clients that intercessory prayer might be more effective than you conducting a retreating, defensive action on their behalf; I suspect your chances will be similar to Richard Sharpe at the Siege of Badajoz, but remember he is fictional so his success is unlikely to be repeated.

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By sj022
24th Oct 2017 17:56

Hi all. Thank you for the comments and views, much appreciated. My apologies for the confusion on the shares, it was one share each so 2 shares in total.

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