The tax General Anti-Abuse Rule, known as GAAR, is now law. There are rumours that this may be used to stop income shifting between spouses despite HMRC losing a case between husband and wife owners of a company ten years ago.
You could attract the attention of HMRC if you pay your spouse a salary, appoint them a director and pay them fees, or transfer shares to them and pay dividends.
You will save tax if you pay your spouse a salary only if they actually work in the business and their pay is reasonable for the work they carry out. If HMRC believes the salary is too much they could challenge this and refuse a corporation tax deduction.
GAAR doesn’t apply to this, so the obvious thing to do is to avoid over-paying your spouse.
Director’s fees are treated in the same way as a salary for tax purposes, so you can pay your spouse a salary if you appoint them as a director.
However, they don’t need to be justified in the same way. Non-executive directors have legal responsibilities which justifies payment.
Simply ensure you pay all the directors similar fees to avoid HMRC questionning the arrangement as being for tax avoidance purposes.
The good news is that, assuming your spouse pays a lower rate of tax than you, it is safe to transfer shares to your spouse so you can pay them dividends. It’s an efficient way to save on tax and National Insurance bills. HMRC has confirmed that transferring assets to your spouse to reduce your income or capital gains tax bill is not an abuse of the rules.