Family Business Tax

[CrazyMoose]

Hi all,

Following my recent P35 submission and subsequent sleepless nights (re: question 6), I'm considering bringing my wife into the business as an administrator to clean up my accounts, to work on my IR35 audit trial and to generally make my life a lot easier. I plan on paying her a market salary for her services, something in the region of £10,000 per annum. Now, here's the big question. Does anyone see a problem with me making her a 40% shareholder and spreading the profits of the business between us? At present, I pay a decent slug of money as extra income tax for dividends I receive over c £40K pa - this is charged at 25% in real terms. From doing a quick calculation, I could save thousands if this income was payable to my wife as well as me. Obviously I’ve looked at the Family Business Tax rules but not in any great detail....

Your thoughts would be most welcome

Thanks

[lurch]

Okay this is very much outside my experience, but we have always avoided this situation in the companies we set up. I did a quick net search and found this from 2004:

http://www.taxcafe.co.uk/articles/companydividends.html

As I said I am nowhere near an expert so I hope someone else with more info can offer something concrete.

[The SMG]

Originally Posted by lurch

Okay this is very much outside my experience, but we have always avoided this situation in the companies we set up. I did a quick net search and found this from 2004:

http://www.taxcafe.co.uk/articles/companydividends.html

As I said I am nowhere near an expert so I hope someone else with more info can offer something concrete.

This is good stuff lurch. I myself have recently read up on FBT and from what I could gather you should be okay paying your wife a dividend provided you can justify that her involvement in the company's success is proportionate with her share of the profits. For example, it’s no good splitting the reserves 50 / 50 when you work 60 hours a week and she “does a bit of filling”. You need to take a prudent view.

Go back over the tax period in question and ask yourself honestly whether you could justify your actions to Hector should he ever call. On the upside, you will (as you say) save a significant amount of additional income tax by effectively spreading the after-tax profits of your Ltd over two personal allowances – it’s beautiful and represents one of the few remaining reasons to stay married in the UK....that and the fact that you may still love your wife!