Hello and welcome again. Thank you for your reply.
Yes, this law deals with splitting of Incomes between couples in order to become more tax efficient. To put it in other words, to save tax by shifting of incomes.
This has come under cloud by some blatant and open misuse of such provisions. Especially the Artic case that you have been referring to.Coming to your point,
so far as my interpretaion goes, both spouse and partners are permissible. However, the key point is that this should not be solely intended for the purpose of avoiding taxes, which is the main reason HMRC puts such entities under scanner.
Note that you may issue shares in your company to anyone you choose. All shareholders are entitled to recieve dividend income from post-tax profits of the company in the same ratio as the shares owned. Since dividends represent a tax efficient method of withdrawing funds from a company. However,
if the spouse, or partner, is a director of the company and they play a significant role in the business then their status as a shareholder is of less concern. The shareholder and director who is not the main fee earner should hold a clearly identifiable role in the company to justify earning dividends.
If we speak about the Artic case in particular, there as well, should be treated as Geoff Jones’ income, and taxed accordingly. But HMRC lost the case, and the ruling has provided married contractors with certainty about the settlement legislation’s exemption for spouses and civil partners.
As long as the shares are ordinary class shares, this means a fee earning contractor can jointly own a limited company with their non-fee-earning spouse or civil partner, split the income from the ordinary shares, and have no fear that HMRC will attempt to tax all the income as the contractor’s.
I am sure this would help.
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