Any Company Directors mulling the change in tax on dividends?

[Mr Bump]

So its pretty much going to be first 5k tax free and the rest up to the basic rate threshold at 7.5%. So if you have been claiming your full 30k (ish) woth its an extra £1800.
From Next Tax year.

Wow what a bummer :-(

 

[dejongj]

So its pretty much going to be first 5k tax free and the rest up to the basic rate threshold at 7.5%. So if you have been claiming your full 30k (ish) woth its an extra £1800.
From Next Tax year.

Wow what a bummer :-(

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

 

[dejongj]

Actually it isn't just for directors is it? It is just treatment of dividends in general I thought.

 

[MatBin]

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

 

[Dale_tem]

Or times two if you used to using S660 income sharing. And then there is the change in treatment of travel expenditure to your clients as well.....

What change in travel? (I missed that one)

 

[SarahLee]

It's OK - Matt isn't going mad.
(or maybe he is . . . but the random quotes aren't part of it )

@MatBin : Having a look now at your posting problem, but we may need to wait for Marcel.

 

[rjbell]

So its pretty much going to be first 5k tax free and the rest up to the basic rate threshold at 7.5%. So if you have been claiming your full 30k (ish) woth its an extra £1800.
From Next Tax year.

Wow what a bummer :-(

I assumed this was what you were referring too in the JC thread.

It's a bit of a bummer.

You can always make your other half a shareholder if you haven't already done so.

 

[Mr Bump]

I assumed this was what you were referring too in the JC thread.

It's a bit of a bummer.

You can always make your other half a shareholder if you haven't already done so.

she runs her own Ltd Co dude

 

[dejongj]

I assumed this was what you were referring too in the JC thread.

It's a bit of a bummer.

You can always make your other half a shareholder if you haven't already done so.

It is not a way around it as I understand as I thought it affects all shareholders. It is basically a 15% straight reduction for a couple...

she runs her own Ltd Comude

What change in travel? (I missed that one)

See here;

http://www.freeagent.com/central/summer-budget-2015-a-mixed-bag-for-small-businesses

Basically small companies with just directors and no employees will no longer be able to claim travel to and from (prospective) client locations as a business expense. Yet companies with many employees will be able to do that. That could effect many husband/wife type businesses around the country, or incorporated builders who mainly use subcontractors, and dare I say I bet many a photography business....

Rather surprising and big changes for small business yet non-affecting for larger businesses. Oh and then there is also the abolishment of the NI benefit which is a further £2K...

 

[JonathanRyan]

she runs her own Ltd Co dude

Um, my wife and I both have limited companies. We are also directors of each other's company

Plan for this year is to draw down less money, sit tight and wait for the clever heads to come up with a workaround. I suspect that making your accountant a part time employee might do it but I'll wait for somebody else to try that

 

[JonathanRyan]

Basically small companies with just directors and no employees will no longer be able to claim travel to and from (prospective) client locations as a business expense. Yet companies with many employees will be able to do that. That could effect many husband/wife type businesses around the country, or incorporated builders who mainly use subcontractors, and dare I say I bet many a photography business....

I've not caught up with the detail of this change yet so I may be wrong.....but I thought that it probably wouldn't affect a typical photography business that doesn't have a studio. If you travel from home office to a single client site then at the moment you can claim expenses for up to 2 years on that site. The change stops this (yes, for small businesses only - body shop IT businesses advise the government on such changes so it's no surprise they are exempt) but I didn't think it stopped visits to several different clients in different places (what's usually called a "travelling salesman"). I'll read up some more.

 

[onomatopoeia]

So, the change to dividends means that the 10% deducted at source from those paid by (for example) FTSE100 companies in which I hold shares will no longer be deducted, if I read that correctly? I do not own enough shares to earn £500 in dividends each year, never mind the £5,000 mentioned in the article.

 

[JonathanRyan]

So, the change to dividends means that the 10% deducted at source from those paid by (for example) FTSE100 companies in which I hold shares will no longer be deducted, if I read that correctly? I do not own enough shares to earn £500 in dividends each year, never mind the £5,000 mentioned in the article.

I believe it's only for small companies. Yes, a Conservative government punishing entrepreneurs. Who would have thought it?

 

[Mr Bump]

So, the change to dividends means that the 10% deducted at source from those paid by (for example) FTSE100 companies in which I hold shares will no longer be deducted, if I read that correctly? I do not own enough shares to earn £500 in dividends each year, never mind the £5,000 mentioned in the article.

under the old scheme and my numbers are loose but bearing in mind the upper earnings limit of basic rate tax at 43k all dividends were taxed at 10% with tax credit of 10% so essentially as long as your total declared earnings were less than 43k you got them for free (taking into account you pay corp tax on profits) .

now the first 5k of divies will be free again given the 43k ceiling and above 5k they will be 7.5% tax up to the 43k ceiling.

 

[Jim_Tod]

I believe it's only for small companies. Yes, a Conservative government punishing entrepreneurs. Who would have thought it?

I think you will find its for all dividends, first £5k within current allowances then a step up to 7.5% after that at all income tax levels.

If you have a mix of own company divvies and, say, ftse 100 company divvies then it applies to the total divvie take irrespective of whether you are into higher rate tax

 

[dejongj]

I've not caught up with the detail of this change yet so I may be wrong.....but I thought that it probably wouldn't affect a typical photography business that doesn't have a studio. If you travel from home office to a single client site then at the moment you can claim expenses for up to 2 years on that site. The change stops this (yes, for small businesses only - body shop IT businesses advise the government on such changes so it's no surprise they are exempt) but I didn't think it stopped visits to several different clients in different places (what's usually called a "travelling salesman"). I'll read up some more.

Pretty certain it is all travel. The change is not related to the type of travel, it is linked to how many employees you have. Most odd and anti competition I would have thought.

 

[JonathanRyan]

I believe it's only for small companies. Yes, a Conservative government punishing entrepreneurs. Who would have thought it?

I think you will find its for all dividends, first £5k within current allowances then a step up to 7.5% after that at all income tax levels.

If you have a mix of own company divvies and, say, ftse 100 company divvies then it applies to the total divvie take irrespective of whether you are into higher rate tax

Oh that's bad Typically I only read the bit that interested me

Pretty certain it is all travel. The change is not related to the type of travel, it is linked to how many employees you have. Most odd and anti competition I would have thought.

Wow - that's really very bad. Maybe time to look into a company van.

 

[dejongj]

Oh that's bad Typically I only read the bit that interested me



Wow - that's really very bad. Maybe time to look into a company van.

A Tesla is also fully tax deductible if that is big enough

 

[JonathanRyan]

A Tesla is also fully tax deductible if that is big enough

Now there's a thought......

 

[Mr Bump]

I'm a bit confused by the travel bit being raised as I haven't seen this.
does this affect standard mileage being claimed to and from your temporary (contract) place of work?

 

[dejongj]

I'm a bit confused by the travel bit being raised as I haven't seen this.
does this affect standard mileage being claimed to and from your temporary (contract) place of work?

Apologies for any confusion, looking into it again two months later it seems to have changed slightly. Where earlier proposals were based around the number of employees now the focus seems to be on any business using an intermediary.

A bit more information here;

http://www.accountingweb.co.uk/article/expenses-consultation-travel-and-subsistence/587597

I would guess that during the fall budget it will become clearer what they are actually going to do.

 

[dejongj]

Now there's a thought......

And an X version (SUV) is becoming available from 29/9, 3.2s to 60

 

[JonathanRyan]

Apologies for any confusion, looking into it again two months later it seems to have changed slightly. Where earlier proposals were based around the number of employees now the focus seems to be on any business using an intermediary.

A bit more information here;

http://www.accountingweb.co.uk/article/expenses-consultation-travel-and-subsistence/587597

I would guess that during the fall budget it will become clearer what they are actually going to do.

It's another law designed to hit IT contractors but leaving Logica et al unscathed. For some reason, HMRC never just say "IT contractors"

I'm a bit confused by the travel bit being raised as I haven't seen this.
does this affect standard mileage being claimed to and from your temporary (contract) place of work?

Yes. I believe it's designed to cover exactly that (though see above - I was wrong on another bit of this so don't take my word for it)

And an X version (SUV) is becoming available from 29/9, 3.2s to 60

A friend has just test driven the turbo nutter version which is faster than most bikes - maybe 2.8?. He was scared enough not to pay the extra - I think his will be limited to something like 4s.

 

[dejongj]

Yes I was together with some chaps who test drove the nutter version as well. Sounds (or lack there off ) great! Two of my friends have got a Tesla S with the super charging station at their home. I'm sorely tempted to look at the Tesla X as a potential replacement for our GL AMG.

On a serious and on topic note, this all becomes relevant for us soon as my wife just decided to go back as our children are a bit older and getting her Ethical Hacking skills updated. Typical bloody time

 

[dejongj]

Here is a response from the treasury...Haven't done the sums, but I guess it is fair and easy to forget the other changes when just looking at this part. However for just dividend receivers it is still not good news but a little better I guess if anyone here is a company director/owner and employee....

-------------------------
The Government is committed to supporting entrepreneurs and a fair tax system. Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations.

The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.

Owners of small companies will also benefit from a range of other measures announced at the Summer Budget, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016. They will also pay less tax as a result of the increases to the tax-free Personal Allowance to £11,000 and to the Higher Rate Threshold to £43,000 in April 2016. We also have a commitment to go much further, taking the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.

However, it is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation. These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill. Taxpayers and the Exchequer will now be £500 million better off as result of reduced incentives for tax motivated incorporation. Those who choose to work through a company continue to pay lower rates of tax than the employed or self-employed. But the reforms move the overall tax rates for the self-employed and those incorporated closer together, making the system fairer overall.

HM Treasury

 

[JonathanRyan]

The Government is committed to supporting entrepreneurs and a fair tax system.

That, right there is a flat out lie. The government neither supports entrepreneurs in any real way nor is it remotely interested in a fair tax system. If it were, then Starbucks would pay more tax than me.

 

[dejongj]

That, right there is a flat out lie. The government neither supports entrepreneurs in any real way nor is it remotely interested in a fair tax system. If it were, then Starbucks would pay more tax than me.

But if you were to set up another organisation outside the UK then you can choose as well where you (your legal entity) would pay tax? Surely you need to compare like for like...

 

[JonathanRyan]

But if you were to set up another organisation outside the UK then you can choose as well where you (your legal entity) would pay tax? Surely you need to compare like for like...

I've not looked into doing that (because immoral) but I suspect it would be rather hard for a UK citizen to do that. I know that my business is a separate legal entity from me but the government don't treat it as an entirely separate thing. For example, if my company were to refuse to pay tax then I personally would rapidly find myself in trouble.

Basically, the tax system is gradually becoming more biased against small businesses in favour of larger ones. That's likely because the larger ones aren't paying their fair share. Another option would be to make them pay their fair share. A sovereign parliament certainly has that ability but they choose not to exercise it, which I guess is the price we pay for capitalism. But starting every tax rise with the words "The Government is committed to supporting entrepreneurs and a fair tax system" is wearing a little thin.

 

[dejongj]

I've not looked into doing that (because immoral) but I suspect it would be rather hard for a UK citizen to do that. I know that my business is a separate legal entity from me but the government don't treat it as an entirely separate thing. For example, if my company were to refuse to pay tax then I personally would rapidly find myself in trouble.

Basically, the tax system is gradually becoming more biased against small businesses in favour of larger ones. That's likely because the larger ones aren't paying their fair share. Another option would be to make them pay their fair share. A sovereign parliament certainly has that ability but they choose not to exercise it, which I guess is the price we pay for capitalism. But starting every tax rise with the words "The Government is committed to supporting entrepreneurs and a fair tax system" is wearing a little thin.

I think a number of things are being mixed up together. The 'others' are paying tax, it is perfectly legal under the double taxation treaty to choose where the corporation pays its tax. However you will need to perform business in the other jurisdiction. So if you choose to expand beyond these shores than you can have the same advantages and disadvantages.

Besides as an entrepreneur who is investing in your business there are lots of tax breaks available that aren't available to larger well established multi-national organisations. I think it goes around and comes around.

And getting into trouble, that is the same for the multi-national organisations, if they didn't oblige by their obligations their directors would also get into trouble. I'm not sure I get the point you are making.

 

[Llamaman]

A sovereign parliament certainly has that ability but they choose not to exercise it, which I guess is the price we pay for capitalism.

They are trying, but it's not easy to do. It's always easier to find and exploit 'loopholes' than it is to stop them.
It also doesn't help that a decent tax barrister can earn £10,000+ an hour, which is more than a tax inspector earns in a month.

Tax avoidance by UK-only resident groups has massively decreased in the time I've been working in the industry (14 years). The problem area is international groups, which has increased as world trade becomes more globalized. This has been made even more difficult by the rise of the internet, which often makes it hard to determine exactly where operations exist.

Multi-national action is required to deal with this, and there was little appetite for that prior to 2008 because nations have been engaged in a tax bidding war against each other. When the tax base collapsed in 2008, all that changed and we are now having genuine efforts between nations to pin down the groups using treaty shopping and tax arbitrage to ensure their profits are taxed at low rates, or sometimes not taxed at all.
The next round of BEPS (Base Erosion and Profit Shifting) announcements are coming very soon, and there will be big changes to the rules on Permanent Establishments, Transfer Pricing, interest deductions from hybrid instruments, intellectual property/patent boxes and more.

Already we are seeing changes - businesses are moving to adopt Country-by-Country reporting (my employer is already preparing for it and I know others are too) even before it is mandated.

The tax environment is very different to the one I joined 14 years ago. A lot less cosy relationship with HMRC (not always a change for the better), a lot more bureaucracy, a lot more transparency, and a lot less appetite for aggressive tax planning.

 

[Mr Bump]

What also needs to be taken into consideration here is some of the changes are targeted not at small business, but companies set up as single director entities essentially operating as personal services companies. A small business can be up to 20 or so people and there are many tax/NI breaks for those.

The main issues here are ones directly targeting single person operated companies who's Director's choose to pay a low salary and take there money in Dividends, lets not mix this up.

 

[JonathanRyan]

Well, for one thing, a lot of these businesses don't trade in the foreign country in any meaningful way. If your business is selling coffee in the UK and to do that you own stores in the UK and employ baristas in the UK and all your customers are in the UK then you really do look like a UK business - no matter where your bean counters actually count the beans. Saying that your UK business is actually a loss making off shoot of your Bermuda business (where AFAIK they don't actually sell any coffee) isn't just barmy, it's lying.

To take another example (and please correct me if I have this wrong).....imagine I run a small IT business with (say) 2 employees. Both of them are sent to work on client site 30 miles from their base office and coincidentally where they live. The new tax laws say that they can no longer claim for travel to those offices because they want to make tax "fair". Now imagine I'm, say, Logica who do exactly the same with 2,000 employees. All of them get to claim travel expenses against tax. Because that's "fair".

Or consider the fact that small private landlords will no longer be able to claim mortgage payments on rental properties as a business expense (though how can they actually be anything else?). It gets hideously complicated but the nett effect will be larger tax bills for small business landlords. Of course larger landlords running limited companies will still be able to offset the cost of borrowing against profit - just like any normal business.

Soon, the majority of the tax in the UK will be paid by private individuals and small businesses. Large companies will offshore it all and "choose" to pay none (because if they don't, their shareholders can call their competence into question). It is very hard to fix this in a global market, but that the government are actually trying to do the opposite while claiming it's about "fairness" is truly astonishing.

You're right that there are some incentives available to small businesses that aren't available to larger ones. But of course larger ones have already learned to slice their businesses up into several smaller ones to take advantage of these. Panorama ran an investigation into a collation warehouse with hundreds of people working there that paid no national insurance at all because it was actually staffed by dozens of companies each employing a small number of people.

 

[JonathanRyan]

What also needs to be taken into consideration here is some of the changes are targeted not at small business, but companies set up as single director entities essentially operating as personal services companies. A small business can be up to 20 or so people and there are many tax/NI breaks for those.

The main issues here are ones directly targeting single person operated companies who's Director's choose to pay a low salary and take there money in Dividends, lets not mix this up.

That is true. But most genuine 20 person companies usually start as 2 - 3 person companies. Stifling them with unequal rules is a good way to make sure they stay at 2 - 3 people.

One reason that start ups take low salaries is to avoid NI payments. Another is because they genuinely don't have the cashflow. Abolishing NI with an associated rise in tax would actually make things fairer for all.

 

[Llamaman]

That is true. But most genuine 20 person companies usually start as 2 - 3 person companies.

Whereas most PSCs only have 1. Perhaps 2, if the spouse is also a Director a la Arctic Systems. (Don't get me started on that...)

One reason that start ups take low salaries is to avoid NI payments.

Yes, which is tax avoidance. Just like Starbucks, but on a smaller scale.

Another is because they genuinely don't have the cashflow.

If they don't have the cashflow for salaries, then they don't have it for dividends either. So they're actually better off with lower CT rates (assuming they're profitable) and higher PT rates on dividends.

Abolishing NI with an associated rise in tax would actually make things fairer for all.

The rates and thresholds (between NIC and IT) are becoming increasingly aligned. It's only a matter of time.

 

[JonathanRyan]

Whereas most PSCs only have 1. Perhaps 2, if the spouse is also a Director a la Arctic Systems. (Don't get me started on that...)

Well, IIRC it's a legal requirement to have 2 directors (or director + secretary) which exactly fits cases like Arctic

You'll know this better than I do, but weren't PSCs basically caused by a tax change several years ago? I thought intermediaries were made responsible for tax defaults by people they hired - so no agency would deal with private individuals any more (at least not in the IT industry where most of the action was). That forced them to set up PSCs. When later the limit on employer's NI was removed, it became desirable to pay low salary/high dividend. In just the same way, I can see the current rules pushing landlords into limited companies. That may not be a bad thing, but it always irks when the government force people to do something and then blame them for exploiting a "loophole".

If they don't have the cashflow for salaries, then they don't have it for dividends either. So they're actually better off with lower CT rates (assuming they're profitable) and higher PT rates on dividends.

Actually I don't think that's true. I know lots of people who effectively run hand to mouth businesses. They cover costs through the year and take the bare minimum they need to live, investing the rest in stock etc. At the end of the year they take anything left in the business as "profit". Big difference between cash and cashflow

ETEOD none of this really matters. If accountants didn't try to avoid tax then nobody would hire them and it's pointless to moan about the rules because, well they are the rules. But every time I see an HMRC bulletin talking about fairness, I think of this

 

[Llamaman]

If accountants didn't try to avoid tax then nobody would hire them

Exactly. The media always blames "clever accountants" for tax avoidance, rather than "ambitious CFOs" or "avaricious investors".

And not all accountants are engaged in aggressive tax avoidance. I've often found my job (especially with smaller clients, as it happens) is to talk them out of doing something aggressive.

 

[Mr Bump]

so @Llamaman any ideas for other directions

 

[Llamaman]

so @Llamaman any ideas for other directions

Have you considered crime? I understand VAT carousel fraud is a non-extraditable offense in Switzerland.

Sensible suggestions will be at my normal chargeout rate