How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask mark25551 Your Own Question

mark25551
mark25551, Accountant
Category: UK Tax
Satisfied Customers: 197
Experience:  Certified Chartered Accountant
Type Your UK Tax Question Here...
mark25551 is online now
A new question is answered every 9 seconds

I have a limited company client, wholly owned by a sole director.

Resolved Question:

I have a limited company client, wholly owned by a sole director. He constantly overdraws dividends and as a result the company is circa £19k insolvent. He wants to transfer 50% of the shares to his girlfriend to mitigate his higher rate tax on the dividends (last year these dividends were £90k net). I have told him that this will be challenged under S660 as there is no commercial justification for this transaction, particularly as the company is a service company and she could contribute nothing other than (perhaps) occasional secretarial services. He wants to know if there would be any difference if she put money into the company (circa £10k). My view is that it would make no difference at all to the Revenue view. Do you agree?
Submitted: 2 years ago.
Category: UK Tax
Expert:  mark25551 replied 2 years ago.

mark25551 :

Hello

mark25551 :

My first response would be that id the company is overdrawn by circa £19k through drawing excess dividends - this itself is an issue as they would be deemed 'illegal' dividends in that the company does not have sufficient distributable reserves to pay the dividends.

mark25551 :

Your client will have to try and argue that at the point of drawing the dividend, they had management information which suggested there were sufficient profits to take the dividend and the reason for the deficit on the balance sheet is due to unforeseen circumstances.

mark25551 :

Being an 'illegal dividend' - technically it becomes a debtor to the company as the dividend should be repaid. HMRC will be all over this looking to treat it as salary or S419 tax.

mark25551 :

Regarding the S660 issue - this is an interesting one.

mark25551 :

My view would be to make the partner a director, this certainly adds more weight to the arguement

mark25551 :

As a director she has various powers to sign off accounts, Vat returns (which I appreciate she can do as secretary) and has all the risks of a director.

mark25551 :

I also take the view that her 50% shareholding is an investment. The fact that the return on the investment is quite high is based on the fact it is a significant risk she is taking. If the company went under, she would lose her shareholding.

mark25551 :

Overall, I have found HMRC struggle to challange the S660 as it is such a grey area and have seen cases won and lost on HMRC's point. My main concern at this stage would be that the company is insolvent and dividends are still being drawn

mark25551, Accountant
Category: UK Tax
Satisfied Customers: 197
Experience: Certified Chartered Accountant
mark25551 and 3 other UK Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Andrew Baker(baktax)

    Personal Tax Adviser

    Satisfied Customers:

    756
    35+ years experience in income tax, CGT, non-residence
< Last | Next >
  • http://ww2.justanswer.com/uploads/baktax/2009-7-15_202414_Frame.jpg Andrew Baker(baktax)'s Avatar

    Andrew Baker(baktax)

    Personal Tax Adviser

    Satisfied Customers:

    756
    35+ years experience in income tax, CGT, non-residence
  • http://ww2.justanswer.com/uploads/teap007/2009-01-10_145815_bill_justanswer_for_profile.jpg TEAP007's Avatar

    TEAP007

    Tax Preparer

    Satisfied Customers:

    754
    Fully Trained Inspector of Taxes / District Inspector/ Team Leader/ Offshore Consultant/ 41 years
  • http://ww2.justanswer.com/uploads/BE/berduchwal/2011-6-7_84817_pict0854.64x64.jpg berduchwal's Avatar

    berduchwal

    Accountant

    Satisfied Customers:

    669
    Qualified accountant and bookkeeper running my own practice since 2008.
  • http://ww2.justanswer.com/uploads/JO/Josh2010/2012-4-29_19490_GettyImages80121770B.64x64.jpg Joshua's Avatar

    Joshua

    Lawyer

    Satisfied Customers:

    61
    LL.B (Hons), Higher Prof. Dip. Law & Practice
  • http://ww2.justanswer.com/uploads/RO/Ronaann/2012-3-19_23343_SSL22629.64x64.JPG Mrs-Tax's Avatar

    Mrs-Tax

    Tax Adviser

    Satisfied Customers:

    59
    Law Degree, 19 years in UK Tax.
  • http://ww2.justanswer.com/uploads/TG/TGraham12/2012-7-17_81212_bigstockBusinessHandshake508163.64x64.jpg Thomas's Avatar

    Thomas

    Solicitor

    Satisfied Customers:

    48
    Exposure to general tax issues
  • http://ww2.justanswer.com/uploads/struppiaml/2009-10-9_95150_anthony_business_002.jpg AnthonyL's Avatar

    AnthonyL

    Tax Adviser

    Satisfied Customers:

    19
    ATT, ATII, 12 years tax experience