Painful Extractions
This is mainly due to the fact that running a business through a company and taking the profit as dividends can create substantial savings. Even with the proposed changes to the tax system from next year, including the 50% additional income tax rate and a corporation tax rate of 22% for small companies, there are still savings to be made.
However, if HMRC can show that the dividends are unlawful from a company law perspective at the time of payment, then they could argue that the money extracted was not a dividend but a loan. Some companies are clearly at risk where currently they are not creating the same level of profits as in recent years and yet continue to extract regular dividends.
For many owner managers, this would leave the company with a corporation tax bill of 25% of the amount taken as well as a taxable benefit for the individual for the use of the monies and Class 1A NIC for the employer.
In a recent case, the taxpayers entered into a particular corporate structure which, if it worked, mitigated the corporation tax bill greatly. HMRC said that this structure did not work. However, the companies involved did not have enough money to pay this additional corporation tax that HMRC thought was due.
HMRC then looked back in time and saw that the owners had extracted a lot of the profit over the years as dividends. So HMRC attempted to use company law to make the owners repay the dividends, as they had been paid unlawfully… which would then have left the companies involved with money to pay the corporation tax.
HMRC won the first two rounds of this case and although they have now lost the latest round, it just goes to show how important it is for companies to ensure they have enough reserves at the time dividends are paid.
HMRC are clearly interested in this area, so if you have any concerns, please do not hesitate to get in touch with Tim McElwaine at unw: T: 0191 243 6067 / E: timmcelwaine@unw.co.uk
Other 2010 news
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unw made case for first barrister and solicitor-owned practice in the UK
unw assists Kyle’s Legal Practice Limited to launch first barrister and solicitor-owned practice in the UK
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unw Saddling up for Sunshine Fund Coast 2 Coast cycle
unw team of 14 due to set off to raise funds for the Evening Chronicle Sunshine Fund
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Audit Update - iXBRL
From 1 April 2011, all companies and organisations will need to file their Company Tax Returns online.
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Economic Insight July 2010
Monthly briefing from ICAEW's economic advisers
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New tax partner for unw
Lee Muter joins as employment taxes partner
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Top adviser returns to the region after brokering a deal with unw
Paul Kaiser appointed head of unw corporate finance lead advisory team
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Post Election Budget June 2010
unw's Post Election Budget Summary is available for you to download
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unw has its fingerprints all over biometrics investment deal
i-Evo receives key funding from Finance for Business NE Fund with the help of unw
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unw advice was first source for Firstsource
unw helps Firstsource secure £1.9m grant to create up to 500 jobs
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Jobs boost as aircraft carrier accommodation remains in the North East
unw credited with providing critical advice to Hertel Technical Services to secure naval contract and jobs in the North East
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International Financial Reporting Standards for SMEs
UK Accounting Standards Board to converge with IFRS
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unw Helps Chris fulfill Uganda charity trip
Chris Wood made the trip of a lifetime to complete a vital financial health check for a Ugandan charity.
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unw completes new deal for corporate finance executive
unw Corporate Finance department welcomes a new team member
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PAYE Penalties
Late payment penalties could be charged on any PAYE amount due if it isn’t paid in full on time
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Firm gets teeth into more work
unw is getting its teeth into new business across the UK as the firm takes its dental business expertise to the capital and beyond.
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The Budget 2010
Following Alistair Darling's pre Election Budget delivered yesterday, we offer a concise summary of the main tax issues for you to download.
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VAT cheque payments by post - Important Changes
HMRC announce important changes to payment of VAT
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Firm saves 60% by outsourcing accounts
A North East architectural group says it has shaved 60% of its accounting overheads after switching from an in-house financial director to external chartered accountancy firm unw.
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10 Things you didn't know about unw
A list of 10 things you didn't know about us!
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Farmers energised by advisers
Sisters Heather Hogarty and Fiona Teasdale are feeling ‘energised’ about their Northumberland visitor’s centre after carrying out a fast-track strategy session with chartered accountants unw.
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Croft Technology takeover will be a one-stop shop for IT
unw Corporate Finance recently assisted TSG in the successful purchase of Croft Technology
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Painful Extractions
Over recent years, HMRC have become increasingly interested in the company law elements of dividends.
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Nearly £60m of grants secured by unw team
unw has increased the value of grants for its clients to nearly £60m in the last year.
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Temporary first year allowance
To encourage investment in the current economic climate, an extra capital allowance is available on a temporary basis
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Extra Bank Holiday announced for 2012
The Queen’s Diamond Jubilee will be marked by an extra bank holiday in 2012, it was announced this week.
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Royal Mail - Possible VAT reclaims
Possible retrospective VAT recovery on postage costs (paid to Royal Mail)
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Selling your practice - use tactics!
Corporate dental chains have shaken up the dental industry in many ways and one is the valuing, buying and selling of dental practices. When corporate acquisition teams flush with investors’ capital start knocking on dental practice doors, a re-eva
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unw Commentary on Pre-Budget Report 2009
Chancellor Alistair Darling presented his Pre-Budget Report on Wednesday 9 December 2009.
