IR591 and non-voting shares
Discussion
Due to the impending IR591 I have been giving some thought to what consitutes a closed company. The Govt say a ltd company with 5 or more shareholders is not closed. Fine.
Is there any way that someone can legally stop me from giving them a non-voting share in my company ?
If there isn't then I may give a share to each member of the current cabinet (especially Msrs Brown and Blair) in order to avoid IR591....and of course if everyone else did so as well it might show the govt what a bad idea it is.
Thoughts anyone ? am I mad or would it work ?
Is there any way that someone can legally stop me from giving them a non-voting share in my company ?
If there isn't then I may give a share to each member of the current cabinet (especially Msrs Brown and Blair) in order to avoid IR591....and of course if everyone else did so as well it might show the govt what a bad idea it is.
Thoughts anyone ? am I mad or would it work ?
It would be unwise to start making arrangements to combat legislation that has not yet been announced.
The old case (1984) of Furness V' Dawson established a precedent wich more or less stated that an artficial construct of transactions or a series of transactions or arrangements which had no genuine commercial reason behind them could not be allowed for tax purposes, even if the construct did not transgress any legislation.
So, bear that in mind if you think appointing additional shareholders just to "get around" some arbitary limit set by the Chancellor.
The old case (1984) of Furness V' Dawson established a precedent wich more or less stated that an artficial construct of transactions or a series of transactions or arrangements which had no genuine commercial reason behind them could not be allowed for tax purposes, even if the construct did not transgress any legislation.
So, bear that in mind if you think appointing additional shareholders just to "get around" some arbitary limit set by the Chancellor.
eric mc said:
an artficial construct of transactions or a series of transactions or arrangements which had no genuine commercial reason behind them could not be allowed for tax purposes, even if the construct did not transgress any legislation.
That sounds like most of IR35 ;-p
Seriously, I'm just testing the water here. I'm not inteding to do anything, but thought I'd offer up an idea for suggestions.
What would happen , for example, if all the 1 or 2 man ltd companies gave nv shares to Mr Brown, would he /could he stop them ?
You need to be careful with this route.
The close company definition is widely drawn and is based on control. That is not only on the basis of voting rights. Rights to income or to assets in a winding up can also give you "control".
To be successful the new shares that you intend to create would need to make the holder a "shareholder". The Court may take "shareholder" in its literal meaning, whihc comes from the origins of companies. Until the 1800's a company was something like a partnership, and so a shareholder has its origins in "part owner" - capital and / or income.
In discussion with a leading QC from the tax bench recently, we did explore certain types of shares and whether they created a "shareholder". There is already a case where the Court has said that a fixed preference share with no participation in capital does not make a "shareholder" for certain legislation.
Most likely you need to issue "shares" that have rights to income and n/ or to capital in the event of winding up - though they don't need to be voting or could carry 0.1 votes (or less) per share.
Are you willing to give away some profit and capital value of your company to someone who is not connected with you (remember that family shareholders rights can be attributed to you in deciding that the company is under the control of 5 or fewer persons)?
The close company definition is widely drawn and is based on control. That is not only on the basis of voting rights. Rights to income or to assets in a winding up can also give you "control".
To be successful the new shares that you intend to create would need to make the holder a "shareholder". The Court may take "shareholder" in its literal meaning, whihc comes from the origins of companies. Until the 1800's a company was something like a partnership, and so a shareholder has its origins in "part owner" - capital and / or income.
In discussion with a leading QC from the tax bench recently, we did explore certain types of shares and whether they created a "shareholder". There is already a case where the Court has said that a fixed preference share with no participation in capital does not make a "shareholder" for certain legislation.
Most likely you need to issue "shares" that have rights to income and n/ or to capital in the event of winding up - though they don't need to be voting or could carry 0.1 votes (or less) per share.
Are you willing to give away some profit and capital value of your company to someone who is not connected with you (remember that family shareholders rights can be attributed to you in deciding that the company is under the control of 5 or fewer persons)?
It will be interesting to see what the budget brings. Until then this is pure conjecture.
I am sure of one thing though - after the debacle of IR35 I'm sure they will have thought long and hard about the loopholes and will have chosen legislation which is already backed up by case law.
If, as has been suggested, a "closed company" is well-defined then that is what they will target.
It will be interesting to see how vigorously they'll pursue Section 660a as well. Fortunately there have been few investigations on that but it is a source of constant worry for family-run business like mine (ie. a company of only 2 people, both directors, who are also married).
I am sure of one thing though - after the debacle of IR35 I'm sure they will have thought long and hard about the loopholes and will have chosen legislation which is already backed up by case law.
If, as has been suggested, a "closed company" is well-defined then that is what they will target.
It will be interesting to see how vigorously they'll pursue Section 660a as well. Fortunately there have been few investigations on that but it is a source of constant worry for family-run business like mine (ie. a company of only 2 people, both directors, who are also married).
JonRB said:
It will be interesting to see how vigorously they'll pursue Section 660a as well.
Yes, this is another worry. Like you we are affected by both 660a and "591". I spoke to my accountant this morning and he's convinced that the Chancellor will do something in March, and it won't be good.
It seems that he introduced incentives to get people to incorporate and now he's achieved that he's going to clobber us all.
Words cannot express eloquently enough my hatred for this government.
The problem is that we have a chancellor who is all powerful and who is driving his own, very socialist IMHO, agenda. Bliar has practically no control over him and as a result spending is out of control and he is desperate for more tax revenue to plug the huge gaps that have appeared. We should all brace ourselves for a pretty appalling few years.
just got this from my accountant...
UNFORTUNATELY WE DON’T YET KNOW WHAT THE CHANCELLOR IS INTENDING. THE BUDGET IS ON 17TH MARCH, WHEN ALL WILL BECOME CLEAR. A CLOSE COMPANY IS NOT ACTUALLY ONE THAT HAS 5 OR FEWER SHAREHOLDERS. IT IS ONE THAT IS CONTROLLED BY 5 OR FEWER SHAREHOLDERS (E.G. THEY HAVE 51% OF THE VOTING SHARES) BUT SHARES HELD BY RELATIVES ARE AGGREGATED WITH EACH OTHER IN DECIDING WHO THE 5 PEOPLE ARE! THUS IT WILL BE ALMOST IMPOSSIBLE FOR SMALL BUSINESSES LIKE YOURS TO ESCAPE THE DEFINITION.
UNFORTUNATELY WE DON’T YET KNOW WHAT THE CHANCELLOR IS INTENDING. THE BUDGET IS ON 17TH MARCH, WHEN ALL WILL BECOME CLEAR. A CLOSE COMPANY IS NOT ACTUALLY ONE THAT HAS 5 OR FEWER SHAREHOLDERS. IT IS ONE THAT IS CONTROLLED BY 5 OR FEWER SHAREHOLDERS (E.G. THEY HAVE 51% OF THE VOTING SHARES) BUT SHARES HELD BY RELATIVES ARE AGGREGATED WITH EACH OTHER IN DECIDING WHO THE 5 PEOPLE ARE! THUS IT WILL BE ALMOST IMPOSSIBLE FOR SMALL BUSINESSES LIKE YOURS TO ESCAPE THE DEFINITION.
Well if the Treasury are going to be tragetting Closed Companies and there is no way to avoid being a Closed Company, then I guess we (through the PCG) are going to have to confront it head-on like we did with IR35 and seek a Judicial Review. The "effective subsidy to large businesses" angle might not have worked last time, but it might do this time.
tim_s said:
IT IS ONE THAT IS CONTROLLED BY 5 OR FEWER SHAREHOLDERS (E.G. THEY HAVE 51% OF THE VOTING SHARES) BUT SHARES HELD BY RELATIVES ARE AGGREGATED WITH EACH OTHER IN DECIDING WHO THE 5 PEOPLE ARE! THUS IT WILL BE ALMOST IMPOSSIBLE FOR SMALL BUSINESSES LIKE YOURS TO ESCAPE THE DEFINITION.
just an idea, but mutual ownership? ie several small businesses get together and give each other shares in each other's companies, would that work? they wouldn't be related and it would perhaps leave a few excess gaps for 'expenses'.....you know, directors meetings, very costly business
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