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bigduckontax
bigduckontax, Accountant
Category: Tax
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TonyI have been offered a role as non executive

Customer Question

Hi TonyI have been offered a role as non executive chairman of a small but growing business. The deal on the table is for a 10% stake in the business, rather than a fee or salary.I assume that as the business becomes significantly profitable, dividends will be paid but this is likely to be a year or two off..What are the tax / employment issues relating to an arrangement like this
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Presumably as Chairman you will be a director of the company. If so you are an employee per se and any remuneration paid to you must be through PAYE channels. Business N2K has the following advice regarding shares in lieu of remuneration in the early years of companies existence: 'So, say I reward you with 500 ordinary shares in my early stage start up company for the hard work and dedication you’ve put in so far and for accepting a reduced salary, HM Revenue & Customs (HMRC) would treat these shares as employee related income subject to income tax (and possibly even National Insurance). Any employment related tax would be due on the market value of the shares at the date of issue or transfer less any amount paid (if any). The logic behind this is that had the company had cash and paid a salary instead then this would have been subject to tax via PAYE in the normal way so there should be no difference… - See more at: http://www.businessn2k.com/employee-shares-headaches-for-early-stage-companies/#sthash.9yVFvktK.dpuf' Putting it into basics your shares would be treated for Income Tax (IT) as though they were income. However, it all depends upon the level of income whether you would incur tax or NI. Dividends, from the 16/17 tax year, will be taxed at 7.5%. Here is Ross Martins Accountants summary of the changes effective next tax year: 'Proposed changes: From April 2016, notional 10% tax credit on dividends will be abolished.A £5,000 tax free dividend allowance will be introduced.Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)Dividends received by pensions and ISAs will be unaffectedDividend income will be treated as the top band of income.Individuals who are basic rate payers who receive dividends of more than £5,001 will need to complete self assessment returns from 6 April 2016.' I do hope that I have been able to shed some light on your situation. The best of luck in this new venture.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3605
Experience: FCCA FCMA CGMA ACIS
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Customer: replied 1 year ago.
Hi Keith
Thanks for the comprehensive response. The original company strated a couple of years ago with just the founders running things. It is now set for significant growth, and they want to strengthen the management of the company and have been adivsed to create a new company as the Topco. Three new directors would be appointed in the new topco and shares in the new company allocated amongst the five directors.If all directors pay for their shares at a given value, can they then take minimum wage for the work that they do and dividend payments as the company grows and is able to afford it?Look forward to hearing from you
Expert:  bigduckontax replied 1 year ago.
Assuming that the directors pay market price for the shares, and if it is a new company then inevitably they would be presumably pound shares that would be outside the scope of UK tax until they came to sell when Capital Gains Tax (CGT) might bite depending on the individual gain made. What remuneration they receive is up to the company. If it is kept below GBP 486 a month then there is no NI payable and it does not normally have to be reported on PAYE on RTI until the end of the tax year unless, of course, HMRC issue tax codes which require Income Tax to be deducted from individuals. Remember that directors are employees per se and must be remunerated through PAYE arrangements. Dividends are an acceptable way of distributing profits, but remember that dividends do not, unlike wages, count against profits in the Corporation Tax (CT) computation. I do hope that I have helped. Thank you for your support.

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