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Share Allocation in a New Micro Business

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AsleepInYorkshire
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Share Allocation in a New Micro Business

#348539

Postby AsleepInYorkshire » October 17th, 2020, 9:20 pm

Is it viable to allocate shares throughout a small micro business unevenly?

Specifically I'm aware of a legal case in 2007 HMRC V Arctic Systems which ultimately HMRC lost after the defendants appealed to the House of Lords.

Have any governments after this raised any laws to change the impact of this ruling?

Thank you

AiY

PaulBullet
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Re: Share Allocation in a New Micro Business

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Postby PaulBullet » October 20th, 2020, 8:19 am

When you set up a business you can allocate the shares anyway you like. however if you are looking to use an unequal distribution as a means to allocate dividends in a tax efficient manner then I would google alphabet shares

this is the first link I found

https://www.taxinsider.co.uk/alphabet-shares-why-use-them-traps-and-pitfalls

The problem in the Arctic case as I see it is one person was visibly seen to be doing all the work, what sort of business are you looking to set up?

Paul

AsleepInYorkshire
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Re: Share Allocation in a New Micro Business

#349270

Postby AsleepInYorkshire » October 20th, 2020, 5:49 pm

PaulBullet wrote:When you set up a business you can allocate the shares anyway you like. however if you are looking to use an unequal distribution as a means to allocate dividends in a tax efficient manner then I would google alphabet shares

this is the first link I found

https://www.taxinsider.co.uk/alphabet-shares-why-use-them-traps-and-pitfalls

The problem in the Arctic case as I see it is one person was visibly seen to be doing all the work, what sort of business are you looking to set up?

Paul

Thank you for your reply, greatly appreciated. I've spent a couple of hours trawling the internet today. Although after the Arctic Systems case the government said they would introduce new legislation I've been unable to find any evidence that they have. I've found a couple of articles which seem to indicate that they haven't.

The Settlements Legislation - S660A
Similarly, a company where both partners have purchased their shares instead of one party being gifted them is also unlikely to be heavily scrutinised. However, even gifts of shares between spouses/civil partners will not be caught as the Settlements Legislation provides for a specific exemption for outright gifts of assets provided the gift:

is unconditional;

carries a right to the whole of the income; and

is not substantially a right to income.

S660a

I take your point regarding the Arctic case and I believe so did the Lords in as much as they agreed that the defendant was avoiding tax. However, they went on to say that there was an older law that allowed him to "gift" shares in his business to his wife. Accordingly if legislation hasn't made this case redundant then I'm wondering how HMRC can enforce anything different. Whilst my good lady will not bring in 50% of the revenue she will effectively do most of the admin work in the background which she will not be paid for. She will however, be able to purchase 50% of the shares in the business and her remuneration, therefore, by form of a dividend is not guaranteed unless the business makes a margin. Her efforts, therefore, come with risk.

We've decided we cannot afford the cost of an office or admin support as it's a cost that needs to be found first. And creating "overheads" in this way seems counter-intuitive.

I am a Quantity Surveyor and propose to work for various customers preparing BoQ's, scopes of work, estimates and other commercial stuff.

AiY

PaulBullet
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Re: Share Allocation in a New Micro Business

#349434

Postby PaulBullet » October 21st, 2020, 8:48 am

If you are setting the company up then you do not need to gift the shares, she can buy them, so you buy 101 A shares and she buys 99 B shares.

Also if you need to lend any money to the company to start it up then she could lend the money for example

Also don't become too obsessed by minimising tax, its a lot harder to get personal loans or mortgages if you are only paid minimum wage. Also if your company only pays you 10k then the furlough money you would have got was 8k.

this is also a good link for income tax vs dividends

https://www.income-tax.co.uk/dividend-tax-calculator/

Paul


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