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None equal dividend payout

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I have 50% shares of a small ltd business and another individual has the other 50%.

We wish to have an unequal dividend payout despite owning 50% of shares each. Is this done through one person having ordinary shares and the other having shares of another class which has a different value for example?

Is this completely acceptable in HMRCs eyes. (There are no tax advantages to be had.)

 

 

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By Wanderer
18th Jan 2022 17:57

Markymark wrote:
None equal dividend payout

I have 50% shares of a small ltd business and another individual has the other 50%.

We wish to have an unequal dividend payout despite owning 50% of shares each. Is this done through one person having ordinary shares and the other having shares of another class which has a different value for example?

Is this completely acceptable in HMRCs eyes. (There are no tax advantages to be had.)

Why are you doing it?
To reflect that there's unequal work done by the shareholders?
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Replying to Wanderer:
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By Markymark
19th Jan 2022 07:41

Yes, reason for doing is to reflect difference in work done (number of weekly hours).

Is it OK in principle to do what I am suggesting?

We have switched accountants and previous accountant had no issue with this, new accountant doesn’t advise and says hmrc would frown on this, but I can’t see why personally.

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Replying to Markymark:
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By Wanderer
19th Jan 2022 07:50

Markymark wrote:

Yes, reason for doing is to reflect difference in work done (number of weekly hours).

Is it OK in principle to do what I am suggesting?

We have switched accountants and previous accountant had no issue with this, new accountant doesn’t advise and says hmrc would frown on this, but I can’t see why personally.

Okay, so I set a bear pit, which you've just fallen right into.
You have an accountant so should take their advice.
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Replying to Wanderer:
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By Markymark
19th Jan 2022 08:08

Wanderer wrote:

Markymark wrote:

Yes, reason for doing is to reflect difference in work done (number of weekly hours).

Is it OK in principle to do what I am suggesting?

We have switched accountants and previous accountant had no issue with this, new accountant doesn’t advise and says hmrc would frown on this, but I can’t see why personally.

Okay, so I set a bear pit, which you've just fallen right into.
You have an accountant so should take their advice.

I have no faith in them unfortunately. I need second opinions, thats the problem.

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Replying to Markymark:
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By Wanderer
19th Jan 2022 09:30

If you have no faith in your accountant find a new one.
BUT be careful you aren't opinion shopping until you find one that you like what they say.

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Replying to Markymark:
RLI
By lionofludesch
19th Jan 2022 13:42

Markymark wrote:

Yes, reason for doing is to reflect difference in work done (number of weekly hours).

Is it OK in principle to do what I am suggesting?

We have switched accountants and previous accountant had no issue with this, new accountant doesn’t advise and says hmrc would frown on this, but I can’t see why personally.

Well, as implied above, "work" ought to be rewarded by "pay".

Which is, of course, taxed a little more harshly than dividends.

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By David Ex
18th Jan 2022 18:14

Markymark wrote:

There are no tax advantages to be had.

If you’re not after a tax advantage, just pay a bonus.

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Replying to David Ex:
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By Markymark
19th Jan 2022 08:06

This would incur higher taxation though. I meant by having an unequal split isn’t to save on tax.

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Replying to Markymark:
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By nrw2
19th Jan 2022 09:46

Markymark wrote:

This would incur higher taxation though. I meant by having an unequal split isn’t to save on tax.

Except it is.

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By Hugo Fair
18th Jan 2022 19:22

"Is this done through one person having ordinary shares and the other having shares of another class which has a different value for example?"

Not as simply as that, although you can have separate classes of shares (say one with voting rights but no dividends, and so on) ... and depending on how you structure these it is possible to retain the 50:50 ownership but have differing dividends rights (determining whether or not they can even be declared let alone for what value of distribution).

BUT ... this can be quite complex to set up if you don't know what you're doing so take professional advice ... AND therefore you first need to work out what you're trying to achieve (not just now but in the future), as otherwise you'll quickly be pouring good money after bad.

As the others have hinted, there may be simpler and/or better solutions *after* you've got your objectives clearly stated - but the combination of unknown facts and possible options makes a public forum an unsuitable place to work it all out.

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Replying to Hugo Fair:
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By Markymark
19th Jan 2022 08:40

Thank you for the detailed reply. Makes sense. My main concern was not wanting to do anything that could upset HMRC. Previous accountant was quite happy with this by way of different share structure they setup to do this, new one not happy but I’m not sure if it’s down to lack of experience hence my questions.

Really I’m after an “in principle”.

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Replying to Markymark:
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By Leywood
19th Jan 2022 09:10

Go back to your old accountant. Why did you leave?

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Replying to Markymark:
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By Tax Dragon
19th Jan 2022 09:30

Markymark wrote:

Really I’m after an “in principle”.

In principle, reward for work is by way of remuneration; reward for investment is by way of dividend.

When you start to use dividends to remunerate, then, as Wanderer pointed out, you can fall into traps.

Could be your new accountant knows more about the law than your old one did.

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By Calculatorboy
18th Jan 2022 20:11

The shareholder just needs to revoke dividend entitlement but there may be issues if the original dividend proposal would make the company insolvent

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By Justin Bryant
19th Jan 2022 09:45

Google "dividend waiver tax issues".

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