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Limited Company FAQs
If a contractor decides to bring a spouse into the business as an employee, to pay their wages as a bookkeeper for example, that’s fine. But doing so does not mean that any level of wages can be paid – the company can only claim tax relief on wages if they are commensurate with the duties being carried out. The wages need to be set at a realistic, commercial level.
However if that spouse has little or no other income, bringing them in as a second shareholder will mean they can receive dividends from the share(s) and use their own personal tax allowance, dividend allowance and basic rate band to reduce the family’s overall tax liability.
Care needs to be taken in deciding the type of share and the rights attached to it if a second shareholder is introduced into the business. Shares normally qualify for dividends equally so if there were two shares, one owned by the director and one by the second shareholder, dividends would be split 50/50. This may not always be what is required, particularly if the spouse has other income and ‘waiving’ a dividend is not always effective or acceptable tax planning as far as HMRC are concerned.
This process is relatively straightforward but it is important to ensure that if an existing share is to be given to the spouse, it is given as an outright gift and that subsequent dividends are paid directly to the spouse. This should protect against any HMRC challenge on tax avoidance grounds.
Yes. But depending upon the value of your company you may be liable to a potential Capital Gains Tax charge if you give away a share at less than its market value. You don’t face this issue if you are gifting to a spouse or civil partner due to the no gain/no loss inter-spousal exemption.
Yes, although it would strictly depend upon the rights of the share(s) held. Normally ordinary shares have full voting rights, rights to dividends and capital distribution on winding up.
No. A shareholder is an investor in the company (paying £1 for a £1 share for example). Although they can also be an employee, a shareholder is not required to work for the company.
It is better if the payment trail is into your spouse’s account but if they don’t have one then provided all the documentation concerning the declaration and payment is visible there should be no problems. HMRC would, in the event of any enquiries, expect to see that the joint account was being used by your spouse as well as yourself.
Your company can declare dividends from undistributed profits which have been brought forward but a shareholder isn’t entitled to dividends declared before they became a shareholder. In other words, you can’t rearrange or reallocate dividends which have already been declared unless there has been an obvious error and corrective action is taken immediately.
Yes. You would be giving away an asset which is part of your company. It may be difficult to rewind an arrangement which may be more costly for you in the long run.
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