Buckinghamshire: Whitley Stimpson issues warning over use of dividend waivers

Accountancy firm Whitley Stimpson is warning company owners over the use of dividend waivers, given a recent decision in a tax tribunal case.

Many shareholder-directors who have their spouses as shareholders currently use dividend waivers in order to give their spouses larger dividends. This results in considerable tax savings for the couple as often the spouses’ dividends are taxed at lower rates.

However, a recent case heard at the first-tier tribunal has found in favour of HMRC’s view that such arrangements are artificial. In the case, two shareholder-directors waived their right to dividends from their company so that their wives could receive cash at lower rates of tax.

The tribunal decided that there was no commercial reason for the waivers; they did not take place at arm’s length; and the intention for them appeared to be solely for the avoidance of income tax.

Jonathan Walton, partner at Whitley Stimpson, said: “This decision should not be taken lightly by those who continue to use dividend waivers. It is clear that HMRC is increasingly of the opinion that this is aggressive tax avoidance and this decision will be a boost to their chances of successfully challenging such transactions.

“There remain a multitude of ways which business owners can mitigate their tax liabilities without resorting to waiving dividends. Remuneration planning is an area full of opportunities but also fraught with risk, and professional advice should be sought by anyone making decisions on extracting value from their businesses”.