Can husband lower his salary to invest in new business?

[swissk]

Hi Ladies, I have a few questions about how (if after divorce) ex-husband's gross salary gets deemed, and how it can influence any child maintenance he would have to pay.

If he works for his own limited company as a director, and clients pay his company for work he does, then I understand his gross salary is based on any salary+dividends he takes out from his company.

But he says that his gross salary could fluctuate if he takes less money out, so his company has money available to invest in new projects that he "hopes will make money". But if he had to pay CM based on his gross salary, should he be allowed to take less salary in this regard? He says to me, that's what business is for, to generate business, and that I wouldn't complain if he made a million from a new business venture. However, so many business ideas fail. I would prefer if he were pragmatic and just worked for paying clients through his company, without his company investing money on other ideas which may never turn a profit, at the expense of him taking less income. Is that reasonable or even enforceable? (And does it add any complications if he's not the sole director?)

Also, how does this scenario work - if he had a job as a regular permanent employee, and also was self employed on the side with his own projects (and lets say they made a loss) does that affect his total gross income for the year? I would guess it would lower his total gross income, just as it would increase his total gross income if his self employed projects made a profit.

I'm not a tax expert so am left somewhat confused by both scenarios :/

Well, it's entirely up to him to decide on the strategy of his business.

He can reduce his salary and maintenance payments would reduce in line with it. Not a great deal you can do really.

That surely leaves the door wide open for ex-husbands to abuse the system? I don't think mine would be so mean. But it sounds like if the ex really wanted to spite, he could have his company invest 80% on projects that went nowhere, and pocket 20% as salary, meaning probably minimal maintenance payments. Though it does also mean he doesn't get much to live on himself.

The company doesn't even have to invest in projects, he could limit his salary / dividends and keep the remainder in the company.
This is basic tax planning - as you say the other side is that it also means income for CM purposes is lower.
Of course, unless / until the money comes out of the company to him as some form of taxable income it isn't his money, it is the company's.

Yes, he can run his own business however he chooses. He can opt not to pay himself a salary at all and book his income solely as dividends, and some self-employed men do so in order to avoid CM. You don't get a say in the strategy of his business.

It is a loophole, and some NRPs use it to screw the RP on maintenance, yes. It's a story that's been played out a billion times on here.

Chasingsquirrels - I had a google, there are some articles talking about 'unearned income' from the NRP's limited company, and it looks like there may be ways to have it assessed and freed up, if deemed appropriate. Especially if it's small business that can survive on just providing a service to single clients, there can't be much unpredictable tax planning to do, or needing to save for a rainy company day, surely.

That said, I do also see the point that if you are running a business, you should be entitled to keep some money back if its for legit expansion. Not sure how much of a struggle it would be for someone to have to open up that can of worms though.

It's not about unpredictable tax planning, or saving for a rainy day.
A limited company is an individual legal entity. It is separate to its shareholders (who can get a return of the company profits via dividends) and it's directors (who can be paid a salary). In many many cases the shareholders and directors may well be the same people.
There are circumstances where the veil of incorporation can be lifted, to pursue the people behind the company. I'm not aware of this in the case of CM, but would be interested to read otherwise.

Found an interesting link, but can't seem to post it. 're notional income from non cash generating assets.

Yes your husband could do this as another poster said, the company is an arms length entity, often including other shareholders and directors.

He can also increase his pension contributions which has the impact of reducing available income for CMS

All perfectly legitimate.

I've been a contractor before.

FYI all salaries paid are stated on annual accounts submitted and freely available to read on company house website.

If your personal company filed annual accounts are showing your salary you've got a rubbish accountant and need to find a new one.

Directors salaries are usually disclosed. OP didn't say it was a personal services company

But yes, he can draw a lower salary if he wants. That means he has less money, just as if he took a lower paid job.

The vast vast majority of accounts filed at companies house should not be disclosing directors salaries.
I didn't refer to a personal services company, I said your personal company (by which I meant a company with a sole shareholder).