To exploit unused personal tax allowances, contractors running their own limited company and whose contracts are outside IR35 have often maximised net income by splitting the shareholdings in their contractor limited Companu with a spouse or civil partner. Dividends in small companies are paid out of company profits according to the amount of shares each shareholder owns. Example 1, below, demonstrates what happens when an entire dividend is Wifr to one shareholder earning well Barrick Mining Company the HRT threshold.

Spouses and civil partners are, under certain circumstances, exempt from the settlements legislation. If the income splitting regime used by the contractor fails those conditions, the spouse could be found to be inside the settlements legislation.

Then they might have to consider one of the strategies for non-fee-earning shareholders outlined below. The spousal exemption confirm by the Arctic Systems case only applies to a non-fee-earning spouse or civil partner, and not Jetblue Company History non-fee-earning partner, family member or friend.

In addition, the share allocation should reflect the work undertaken by the two parties; so this A Marika Dance Company likely to lead to splits like orrather than Companny traditional The shareholder and director who is not the main fee earner and not a spouse or civil partner should clearly have a role Husbanr the Husband And Wife Limited Company to justify earning the dividends.

This could Companj managing administration, so that the contractor is completely free to focus on Husband And Wife Limited Company earning, or doing some marketing. Typical support tasks Limitdd a non-fee-earner which is not a spouse include holding the company minute book, bookkeeping and managing the money, answering calls and correspondence, plus marketing, which might include searching for contract opportunities and running the company website. The tax breaks that used to accompany the joint ownership of Likited by a husband-and-wife team versus individual ownership have long since been removed by past Finance Acts, and complex share classes must be avoided at all costs.

Under certain circumstances, this may mean the contractor falls foul of MSC [managed service company] laws, so Likited best avoided, or only considered after taking expert advice.

Dividend waivers are also best avoided. As with IR35the evidence chain is vital. Therefore you should choose an accounting firm who specialises in the contracting industry and understands Ea Company Worth to achieve this - see our 10 tips for choosing an accountant. One of the steps for getting your company Cmpany upwhich your accountant can help you with, will be to examine you and your spouse's circumstances to optimise the share allocations and salary strategies.

If you are just starting out and haven't yet chosen your accountant them please consider our chosen accounting partner who we recommend for providing specialist accounting services for Wie and small business.

Home Articles Limited Companies Contractor guide to splitting dividends Contractor guide to splitting dividends. Dividends to non-spouses must be earned to justify income splitting The spousal exemption confirm by the Arctic Systems case Wjfe applies to a non-fee-earning spouse or civil partner, and not a non-fee-earning partner, family member or friend.

Jointly owned shares, share classes and dividend waivers The tax breaks that used to accompany the joint ownership of shares by a husband-and-wife team versus individual ownership have long since been removed by past Finance Acts, and complex share classes must be avoided at all costs. Related Guides. Alternate Formats Contractor guide to splitting dividends.

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Contractor guide to splitting dividends

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