Income splitting: Hypothetical question

reader

Purely a hypothetical question that has come about from me re-visting articles on Artic Systems (here and here).

Lets say that there is a limited company owed by two shareholders (son and mother, each owing 1 x £1 share), and lets say that only the son withdraws money from the company.

For tax purposes, can the shareholders still draw up dividend vouchers and declare a 50:50 split on their tax returns despite the actual bank transfers showing a split of 100:0.

I'm assuming the answer is "no" but am just interested in how MiP's deal with income splitting and drawings by directors in practice.

stevo5678

I don't see any issues with this and have seen it done many times, the argument would be that the shareholder/director who is taking money out sorts it out between his son and himself (For the record I've never seen it come to this!).

I've never seen a challenge from HMRC on this, and how could they mount a real challenge if both shareholders are happy with the current arrangement.

Most husband and wife structured companies I have seen operate this way via the husbands loan a/c (as the wife is not normally a director, only a shareholder).

reader

stevo5678 wrote: »

I don't see any issues with this and have seen it done many times, the argument would be that the shareholder/director who is taking money out sorts it out between his son and himself (For the record I've never seen it come to this!).

I've never seen a challenge from HMRC on this, and how could they mount a real challenge if both shareholders are happy with the current arrangement.

Most husband and wife structured companies I have seen operate this way via the husbands loan a/c (as the wife is not normally a director, only a shareholder).

Thanks - that makes sense - I tend to see the same thing at work too