Avoid S660 Tax
An accountancy expert has given us his views on how IT Contractors can avoid S660a.
It’s best to be ready, therefore, just in case.
How Do I Make the Company Less Attractive as a Target?
So, we must look at other options to mitigate the risk arising from detection by the HMRC and make all companies less attractive to them.
It has never been more true that HMRC receive 80% of their income from 20% of their work, from which we can conclude that they are looking for easy targets.
Follow Simple Steps to Avoid S660a
By taking the following simple steps, therefore, it may reduce the chances of the tax office thinking you‘re an easy target:-
– Ensure the issued share capital of the company is not merely a £2, this screams out to the IR that it is a tax avoidance measure. Increase the issued share capital to around £1,000. This shows the taxman that there has been some investment in the company;
– Ensure the main earning member in the company is extracting a salary from the company. There are varying estimates on how much should be put through but we recommend a salary in the region of £15,000 with the remaining distributions being made by way of dividend;
– Make both spouses directors, this shows that they are both involved in the running of the company;
– Revise the shareholdings to 80:20 or 75:25 in favour of the fee earning spouse. This again makes it less attractive as there would be less recovery for the Inland Revenue should they enquire;
Ensure All Assets Capitalised
– Capitalise all assets are through the company, increasing the balance sheet value. This again shows that the company is operating as a true business rather than as a vehicle to extract funds;
– File all accounts and tax related returns promptly so as not to arouse suspicion;
– Keep a record of all actions and responsibilities undertaken by both shareholders, not just a record of book keeping. This would show that both spouses are running the company, with neither sitting back and simply raking in dividends; – Pay dividends for the non-income generating spouse in the a bank account in his/her sole name;
– Ensure the spouse‘s shares are ordinary shares and have no restrictions in any way;
Formal Deed of Gift
– If shares are a gift, ensure they you cover them by a formal deed of gift;
– Where a gift is made or subscribed, ensure this is carried out prior to engaging any contract or the company becomes profitable;
– Do not use dividend waivers, the IR view this like a red rag to a bull!
You can make considerable tax savings through using limited companies instead of other structures by the correct mix of salary, share structure and dividends. This is how you avoid S660a.