Readers’ forum: Dividend treatment on shareholding arrangement

I know this issue must have cropped up many times before but I am never sure that I have got to the bottom of it.

My client company has two 50-50 shareholders Janet and Jane. They are in a long-term relationship but are not married or in a civil partnership. Janet works full time in the business – Jane does a few bits of administration but is not generally involved and has caring responsibilities. They operate a standard model with minimal salary and dividends.

How vulnerable is this structure to attack by HMRC on the basis that Janet should be taxed on all of the dividends?

Obviously this bears similarities to the Arctic Systems case but there the special rules for husband and wife came to the taxpayers’ rescue. Those rules do not apply here of course so is there a problem in this particular situation?

I...