Shareholders of recruitment agencies have an added advantage over employees of the business as they will often be entitled to receive dividends alongside their normal salary and expenses.
Shareholders are eligible to take dividends on profits made after corporation tax has been calculated and can be taken/declared throughout the tax year.
The advantage for shareholders in taking dividends is that the personal tax rates for these are lower than standard PAYE tax rates and no national insurance is deducted. Any dividends declared need to be submitted on a personal tax return and the appropriate personal tax paid by 31st January of the following tax year (with a payment on account also due by the 31st July).
However, TBOS has found over the years that when we take on new recruitment agency clients, the shareholding position of the company has not been looked at and in some cases there can be a significant way of saving on personal tax but rearranging the company structure.
The first instance is where a company has multiple shareholders who have the same class of shares. This means that if the company decides to distribute a dividend to one of the shareholders, the other shareholders also have to take the same amount (whether they want to or not). This may mean that some shareholders will have to pay more personal tax if another shareholder needs their dividends within that tax year.
In order to combat this would be for each shareholder to have a different class of shares so that the shareholders can decide on the amounts to be distributed to each share class and each person can take different amounts at different times.
The second instance is where a shareholder is married and their spouse is not a shareholder of the business. As every person has the same tax allowances, this may mean that a shareholder may end up paying higher rate taxes on their dividends whilst their spouse has not used up their tax allowances.
In order to combat this would be to gift a small portion of the shareholding to their spouse under a different class of shares and work with their personal tax adviser to maximise the dividend distributions between each party. This way the shareholders can maximise their allowances and potentially reduce their personal tax bills as a married couple.
In all cases regarding share transfers and advice it is best to have a shareholder’s agreement in place and take advice from a personal tax adviser.
TBOS has helped many of its clients with their shareholding set up and strategy to maximise their take home as their recruitment agency grows.
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