Business Tax Insider: The Monthly Business Tax Newsletter

It is common for a self-employed individual to engage family members to work in their business. Sometimes, the family member will undertake work free of charge out of natural love and affection, particularly when the business owner is starting out. 
 
As the business grows, the family member will often be paid for their work in the capacity of an employee. However, what if the family member is self-employed in their own right? The distinction has implications such as employment rights, National Insurance contributions liability, deductibility of payments, allowability of work expenses, disclosure of the income and the nature and timing of tax liabilities.

Mark McLaughlin considers an important tax issue where a self-employed individual engages a self-employed family member to freelance in their business. 

Sharing dividend income between spouses or civil partners rests on a straightforward idea: two personal allowances and two basic rate bands are better than one. For 2026/27, dividends are taxed at 10.75% in the basic rate band, 35.75% in the higher rate band and 39.35% above the additional rate threshold. Each individual has a £500 dividend allowance, which operates as a nil rate band and uses up part of the band in which it falls. 

The ordinary and upper rates each rose by two percentage points on 6 April 2026. The gap between them remains 25 percentage points, so the saving from moving a pound of dividend income from a higher rate spouse to a basic rate spouse is no greater than it was. What has increased is the cost of leaving that income in the wrong hands, and the fall in the dividend allowance from £2,000 to £500 has removed most of the cushion that once absorbed small imbalances. All these changes mean arrangements set up years ago must be reviewed again.

Nick Wright examines how couples can share dividend income from a family company in 2026/27, the conditions that the settlements legislation imposes on transfers between spouses, and the share rights that decide whether the planning survives an HMRC enquiry. 

For companies incorporated in England and Wales, a distribution in specie (or in kind) generally entails a company distributing an asset to its shareholders. It may also arise where a company declares a dividend of a specified cash sum, which is then satisfied by the transfer of the relevant asset to its shareholders.  

In-specie distributions are often made in the context of corporate demergers and reconstructions, and their legal requirements must always be respected.  

The Companies Act 2006 (CA 2006) deals with in-specie distributions in the same way as normal cash dividends. Consequently, the directors must be satisfied that the company has sufficient distributable profits to ‘frank’ the value of the in-specie distribution. Furthermore, before making an in-specie distribution, the directors must ensure that it is permitted by the company’s articles (in-specie distributions are permitted by article 34 of the current ‘Model Articles’ for private companies).

Peter Rayney offers some practical help for dealing with in-specie distributions.

Where a business is operated through a company, such as a personal company or a family company, the profits need to be extracted if they are to be used personally outside the company.  

The two main ways of doing this are by paying a salary or a bonus, or by taking dividends.

Sarah Bradford considers whether it is better to take profits from a personal or family company as remuneration or as dividends. 

Some company shareholders may either be unaware or have forgotten about a relatively unknown capital gains tax (CGT) relief that offers a reduced CGT rate of only 10% on qualifying gains of up to £10m during their lifetime, if certain conditions are satisfied.  

Mark McLaughlin highlights a relatively unknown and infrequently used but generous capital gains tax relief.

Owner-managers can spend a significant amount of time and energy building a successful and profitable trading company.

Joe Brough looks at tax issues for business taxpayers and their tax advisers when a company is coming to an end.