Can my children own shares in my company? 3

Young working boy with tie on computer

The s660 rules (or settlements legislation) have been around since the 1930s.

The rules stop you passing income to someone else in the family, or giving income or assets to someone else in an effort to reduce your overall tax bill. This is called a “settlement”, and the aim of the legislation is to stop people settling their income on another person who pays tax at a lower rate. (Contractor UK)

There are some interesting cases where business owners have tried to pass shares to their children unsuccessfully

Copeman v Coleman [1939] 22 TC 594

A company had been formed to take over the taxpayer’s business. He held the shares equally with his wife. Later the company created a class of preference shares of £200 each carrying a fixed preferential dividend, the right to vote if such dividend were in arrear for three years or more and the right in a winding up to a return of capital paid up. Some of the shares were taken up by his children on which they paid £10 per share. Dividends substantially in excess of the amounts paid up were then declared and the taxpayer, on behalf of his children claimed repayment of the tax paid in respect of the dividend to the extent of that child’s personal allowance. (http://swarb.co.uk/copeman-v-coleman-1939/)

Crossland v Hawkins [1961] 39 TC 493

The taxpayer, a well known film actor, agreed to work through a company for three years being paid £50 per week. The shares were transferred to his wife and accountant. His father in law set up a £100 settlement for the benefit of his children of which his wife and accountant were the trustees. The fund was used to subscribe for the remaining 98 shares. He appeared in a film for which the company was paid £25,000. The company paid a dividend which was applied by the trustees for the benefit of the children. Jack Hawkins then applied on behalf of his children for a repayment of tax to give effect to their personal allowances. The repayment claim was rejected on the grounds that the whole arrangement was a settlement of which Jack Hawkins was a settlor because he had provided the funds for it. (http://swarb.co.uk/crossland-v-hawkins-ca-1961/)

Butler v. Wildin [1989] STC 22

A company was formed by two brothers who acted as unpaid directors. Shares in the company were initially held by their infant children, which were paid out of gifts from their grandparents. The company acquired a development site using a bank loan, which was guaranteed by the brothers. The company subsequently became profitable, and dividends were subsequently paid to the infant shareholders. The High Court held that the children’s investment of ‘trifling sums’ in the shares and the parent’s provision of services to the company constituted an arrangement. An element of bounty was given by the parents in the free provision of their skill and services, and by adopting any financial risk in the company’s venture. Dividends paid to those children born before the arrangements were made (but not dividends in respect of shares transferred to children born afterwards, as there was no apparent arrangement to benefit future children) were taxable on the parents, under what is now section 660B.(http://www.taxationweb.co.uk/tax-articles/business-tax/is-that-settled-then.html)

Jeremy Vine

Which brings us to the new case of Jeremy Vine

Mr Vine appears to have been using his ten-year-old daughter Martha to avoid tax payments.

The presenter of the Jeremy Vine Show and the TV quiz Eggheads, has been funnelling cash through a limited company, Jelly Vine Productions, of which she is a shareholder.

Jelly Vine Productions had almost £810,000 in cash on its books in 2013 – the last accounts available, and £1million in 2012. 

Read more: http://www.dailymail.co.uk/news/article-2983593/Jeremy-Vine-daughter-10-shareholder-lower-tax-bill.html#ixzz3Z09xqmtO

The rules are clear on this and income given to children under 18 will be taxed on their parents so what did his advisers have in mind?
steve@bicknells.net

The Taxman takes his revenge on EBT’s….. Reply

Scaring amounts

Its been a long time coming, back in 2011 HMRC gave employers the chance to settle amounts owed in relation to Employee Benefit Trusts.

So what were EBT’s and how did they work…

The employee benefit trust (EBT) was used for many years as a way of avoiding corporation tax and income tax for employees.

Basically, any cash that was moved from the company account into the employee benefit trust was treated as an expense for the company, thus reducing corporation tax liability. The company could even then loan the cash back from the EBT as required in the future and additionally interest was charged on the employee benefit trust loan creating even further expenses for corporation tax avoidance. The key employees were then able to also either get an employee benefit trust loan, which was constructed so that it was never paid back, or they could take cash bonuses, which were taxed.

http://www.thetaxexperts.co.uk/employee-benefit-trust/

Scottish businesses involved in EBT’s could now face a tax bill of £400m

Scottish EBT schemes reportedly received letters warning them that the taxman is pursuing cases against EBTs, adding they had a 20% chance of winning any court case outright, a 60% chance of partial victory and 20% risk of an HMRC victory. A partial victory is likely to see businesses paying around £400,000 for every £1m ring-fenced, while a negotiated settlement would likely lead to payments of £412,000 for every £1m.

steve@bicknells.net