Dividend payments / multiple shareholders query

each class of shares should have the same rights, so a dividend paid to one should go to all. One workaround is for this to happen but all the others to waive their entitlement, leaving you getting the dough.

Another is to issue B shares which are non-voting but carry the right to a dividend. Issue these just to you then declare a dividend on B shares only.

Phil

Thanks for the feedback Phil.

If I opt for the other shareholders to waive their entitlement, can I achieve this simply via a special resolution, signed by the other shareholders?

Your accountant may be obliged to report such a tax avoidance scheme to the Inland Revenue and if so is not obligated to tell you he has done so.

In message , Peter Crosland writes

In what way could this scheme be so defined?

I don't think you need a special resolution, they just need to write to the CoSec waiving their entitlement after the board has passed the divi resolution giving them one.

Phil

Caution may be required if there are insufficient distributable reserves to pay the full dividend without the relevant waiver(s).

"Doug Ramage" wrote

Eg: if distributable reserves would only cover (say) 21K divis, and the OP wants 10K but that would mean declaring 30K and waiving 20K? [Not allowed because 30K > 21K.]

Well, what about:

(1) Distributable reserves cover 21K divi. (2) Declare just 18K divi. (overall). (3) Pay 6K to OP, other s/h's waive theirs. (4) Now distributable reserves cover 15K divi. (5) Declare 12K divi. (overall). (6) Pay 4K to OP, other s/h's waive theirs.

Overall: OP has received 10K as required, and all divis were covered by distributable reserves at the time of declaration ...

Why not just buy the company from the other shareholders for a nominal fee? I suspect that it might be simpler.

Stephen

Mainly because the VC trust has invested a substantial sum in it, and will want to retain a share in any future realised value (as unlikely as this may be) - they are currently looking for a home for the IP to the software which was marketed by the company.

The other shares are held by former employees, who would also want to retain a share for the same reasons.

Form a new Ltd. company, it only costs £100 or so.

There is some hearsay going around, for some years now, that the Revenue don't like different classes of shares where dividends are being drawn in small companies.

Basically it enables one to set up a limited company with e.g. one's wife, say 51/49 shareholdings with with the wife having extra B shares, and if the man's lower rate bands are already used up doing something else, his wife can use hers up via a dividend which can be a lot bigger than his, while he retains control of the company.

In place of "wife" put "anybody" and it is even better, because it allows you to skew the dividend distribution without losing control of the business.

"John-Smith" wrote

But what can they do about it?

If it is all set up properly & it is all legal - how could they possibly show that there was any specific apportionment of "work done" between a husband & wife - any differently to the way the husband&wife could disclose??!! [Ignoring IR35-type "just husband working in a client's office, but wife does some books at home" scenario.]

It's more than hearsay - the IR were successful in the 2 recent (1996) cases of Young v. Pearce and Young v. Scrutton where different classes of shares were used in an attempt to divert income to the wives who were in a lower tax bracket.

They can assess the settlor if an "arrangement" cannot be disproved - subject to the relevant exceptions permitted by the legislation.

Well they're certainly trying to do it as a follow on to IR35 to completely destroy small one and one and a half person companies.

The new tactic is IR660 or something isn't it?

I assume you are referring to Section 660 et seq ICTA 1988 which deals with settlors and attributing the income of others to them?

If so, there is some information in the IR's Tax Bulletin 64 (April 2003) on the subject.

That's the one, I got the '660' right at least.

Yes, they're trying to enforce a new IR interpretation of the existing rules. The IR are claiming that a 'partner' (e.g. spouse) cannot be paid by the business for doing things like book-keeping and so on where the main earner for the company is the other person. They are saying that all income must go through the earner of the income's tax and thus (if it's that much) can push him/her into the 40% rate. You cannot utilise a [semi]-sleeping partner's tax allowance to reduce the tax liability by paying them something for housekeeping/book-keeping or whatever.

Yes of course you can. The catch is, though, that the partner does actually have to do some work (or have contributed capital) to justify being paid for it (or reaping dividends).

Getting 50% of the income for doing 5% of the work is what's being targeted.

They appear (from reports that I've seen) to be targetting any income given to a [semi]-sleeping partner.

What they are saying is that a contractor who has a single ongoing contract *must* take all of the income him/herself, they are not allowing *anything* to be paid to a partner, even one who does do some work for the business.

Essentially they are targetting anyone who works in a way that they think is disguised employment. If you were an employee you couldn't give some of your income to your spouse/partner to reduce your tax liability even if they do some work which helps you. The IR are saying the same should apply to a contractor working through a Ltd. company. In this sort of situation it's beginning to look like a Ltd. company is more of a nuisance than a help.

Unless the spouse/partner actually does work for the Ltd. company's customer (and it's invoiced that way) the IR are saying that you

At least that's my understanding of what's going on.