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Where Taxpayers and Advisers Meet

Dividend waiver & section 620 ITTOIA

simpsonite
Posts: 96
Joined: Wed Jun 24, 2009 11:58 am

Dividend waiver & section 620 ITTOIA

Postby simpsonite » Tue Jun 02, 2015 4:29 pm

Hi all,
I recently have taken on an a new company client
The share capital was split 500 'A' ordinary shares to Mr & 1 'B' ordinary share to Mrs.

I understand that the share capital was split in this way because Mr wanted protection in the event that he split up with his wife!

In previous years the dividends were split in the most tax efficient manner on Mr & Mrs respective tax returns.
The revenue are now saying that this would be an arrangement akin to a dividend waiver within section 620ITTOIA.
They are using patmore v HMRC 2010 as case law to back up their decision.

They go on to say that Mr is the settlor in view of his controlling share capital.

The Revenue have amended the previous years dividends and re allocated them as 500/501 to Mr & 1/501 to Mrs thus resulting in a significant extra tax charge on Mr!!

Before I respond to HMRC is anyone able to offer an opinion preferably in favour of my client over HMRC.
I fear my client might have a problem here?!!

thoughts much appreciated,

simpsonite

CGA
Posts: 5
Joined: Sun Apr 12, 2015 4:24 pm

Re: Dividend waiver & section 620 ITTOIA

Postby CGA » Thu Jun 04, 2015 11:52 am

Hi
Could you clarify whether the shares split has always been 500/1 and what are the rights to dividend/capital on the A and B shares?

simpsonite
Posts: 96
Joined: Wed Jun 24, 2009 11:58 am

Re: Dividend waiver & section 620 ITTOIA

Postby simpsonite » Thu Jun 04, 2015 3:40 pm

HI CGA,
The company was incorporated in 1998.
The authorised share capital was £1000 shares divided into 500 'A' ord of £1 ea & 500 'B' ord shares of £1ea.

It wasn't until in or around 2003 that the share capital was altered to 500/1


The A & B shares have the right to receive out of the profits of the company such dividend as shall be declared in respect of them and such div shall be distributed rateably amongst the A & B ord shares in issue according to the amounts for the time being paid up or credited as paid up thereon.

bd6759
Posts: 3095
Joined: Sat Feb 01, 2014 3:26 pm

Re: Dividend waiver & section 620 ITTOIA

Postby bd6759 » Thu Jun 04, 2015 10:48 pm

I presume you mean the issued capital was 500 a and 500 B.

what happened to the 499 B shares in 2003?

simpsonite
Posts: 96
Joined: Wed Jun 24, 2009 11:58 am

Re: Dividend waiver & section 620 ITTOIA

Postby simpsonite » Fri Jun 05, 2015 11:01 am

the authorised was 500 A & 500 B

the issued and fully paid was £1 A & £1B

in 2003 Mr 499 A shares were issued to him and paid

bd6759
Posts: 3095
Joined: Sat Feb 01, 2014 3:26 pm

Re: Dividend waiver & section 620 ITTOIA

Postby bd6759 » Fri Jun 05, 2015 5:07 pm

the authorised was 500 A & 500 B

the issued and fully paid was £1 A & £1B

in 2003 Mr 499 A shares were issued to him and paid
That paints a different picture. Why tell us about shares that haven't been issued? Authorised shares mean nothing at all: it is issued that counts.

The rules as you quoted
The A & B shares have the right to receive out of the profits of the company such dividend as shall be declared in respect of them and such div shall be distributed rateably amongst the A & B ord shares
suggest that HMRC are correct with the 500/501 split, before we even look at Patmore.

What was the point of issuing 499 extra A shares? It is unusual, if not downright odd, to issue shares in order to reduce the dividend payable to the shareholder. Were they issued at par or at a premium to raise funds?

simpsonite
Posts: 96
Joined: Wed Jun 24, 2009 11:58 am

Re: Dividend waiver & section 620 ITTOIA

Postby simpsonite » Mon Jun 08, 2015 9:39 am

bd6759,

The extra 499 shares were issued to Mr on advice of prior accountant. As already stated earlier, it is my understanding that Mr was trying to protect his share of the company In the event of him & his wife splitting up.
But in doing so it would appear that the divs should also have been split In the same ratio.


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