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Tag: Directors

Directors

  • #Budget2015 – Game, Set and Match

    Aces

    There were a few aces served up on behalf of small businesses during the ‘game’. These include:

    • The reduction in corporation tax to 18% always welcome by all businesses.
    • Permanency of 100% capital allowances for spend of up to £200k each year provides certainty in investment decisions and supports the recurring poor UK productivity conversations taking place recently.
    • The widely touted IHT (inheritance tax) saving when passing on the family home to direct descendants helps business owners who invest their profits into their family home.

    Double Fault

    However, small businesses may not be impressed with the double fault:

    • Increasing dividend tax from 0% to 7.5% on dividends over £5k within the 20% basic rate income tax band is a classic example of extending the reach without increasing the rate.
    • Add on the 32.5% rate on dividends within the higher rate band which looks the same as it is today, but is an increase from a net 25%, and you have a disincentive to incorporate, at least until the lower corporation tax rate kicks in.
    • This looks like a way to recover more tax from consultancy/freelance companies who are genuinely self employed and can arrange their remuneration tax efficiently in the same way as any other owner-director.

    Deuces

    A further disadvantage for consultancy/freelance companies but bringing some advantage to small businesses with staff:

    • Increasing the Employment Allowance from £2k to £3k saving more employer’s national insurance could encourage a small business to employ a person on a £30k salary or 3 people on a £15k salary. With part timers, under the £8k threshold, it’s not unusual for small business to have quite a few employees but no employer NI bill.
    • On the other hand the Employment Allowance will not be available at all to 100% owner-director companies who have been able to save about £200 by increasing their salary slightly. This simply revises their salary back to pre Employment Allowance levels, currently about £8k.
    • With the dividend rate changes, owner-directors will use their remaining tax free personal allowance, currently about £2k, to save some of the new 7.5% or 32.5% income tax rate on dividends above £5k.
    • They may also tip the balance to taking more dividends out this year, perhaps with employer pension contributions while you can.

    Five Setter

    It was a long game going to five sets covering other important areas such as:

    • Buy-2-let property owners by their sheer numbers are a relatively easy target to help raise more tax by restricting interest relief on buy-2-let loans to to basic rate tax and taking away the 10% wear and tear allowance.
    • Encouraging more rent-a room use of your own property by increasing the tax free income from £4,250 to £7,500, a 76% increase! Coupled with the IHT improvement is telling us to live in bigger homes and rent a room out rather than invest in a buy-to-let!
    • Bringing in non-Doms to the ‘normal’ tax net when they have either been borne to UK parents or have lived in the UK for 15 out of 20 years. Another example of extending the reach without increasing the rate.
    • Withdrawal of corporation tax relief on goodwill on acquisition of a business but allowing a lesser, non trading loss, relief on ultimate sale. An interesting way to provide a net relief, and will keep tax advisers and commercial lawyers very busy in future business sales.
    • Ensuring that when stock is sold it’s sold at market value and not a more tax efficient value agreed between both parties has clearly been identified as an area with some tax leakage.

    Winners and Losers

    Losers continue to be higher and additional rate taxpayers including consultants/freelancers. This means any future increase in the higher rate income tax threshold is very welcome providing a whole host of knock-on effects such as for dividend tax, capital gains tax, and pension reliefs. Winners continue to be trading businesses employing staff, low paid earners and many basic rate taxpayers. 

    Whether the Chancellor can continue to serve at this pace into the next Budget in March 2016, we will soon find out.

     

     

     

     

     

     

     

     

  • Autumn Statement – AKA The Pre-Budget Budget

    Today’s Autumn Statement was more of a mini Budget than usual. Presumably due to the recent pressure being applied by the opposition.

    The good news for businesses is that taking on an under 21 year old won’t cost you any national insurance, but only from April 2015. In the meantime, if you can’t wait, you can employ anyone on up about £22k (or more than one person on lower salaries) from April 2014, and, under a previously announced measure, this won’t cost you any national insurance either. Both rules will continue into April 2015, so you could arrange your workforce to cost you no national insurance at all.

    It has at last been recognised that small retailers need help in competing against the Internet. Potentially, the most valuable relief is a 50% reduction in rates when re-occupying an empty property. Being able to pay rates in monthly instalments may also be helpful for some.

    Despite the stated aim to simplify tax, we now have another class of national insurance: Class 3A. This is nothing to do with employment or business, but it’s worth knowing that there’s another route to topping up your additional state pension, if necessary.

    A surprise change to the capital gains rules on homes means that the 3 year rule helping to exempt many homes from some/all of its capital gains tax, is being reduced to 18 months. This means that if you no longer live in your residence and you let it out before selling it, you can only have the last 18 months of the letting period tax free, together with the actual period of your residence. This indicates a certain amount of impatience with second home owners and the reduced tax they pay.

    It’s also worth noting there are now plans to make inheritance tax returns online. This will save executors a lot of time and hopefully speed up the whole process with HMRC.

    HMRC might need this help too, seeing as they are under a lot of pressure to continually find more tax from new anti avoidance measures. Identifying, challenging, and retrieving this tax due isn’t easy, particularly within these time frames. Expect a more aggressive attitude in certain areas.

  • Budget 2013

    Necessarily a muted Budget, as the Chancellor had little room for manoeuvre, but there were a couple of surprises to keep us interested!

    National Insurance £2,000 Credit – from April 2014

    Giving a £2,000 credit from April 2014 against employer’s national insurance is a welcome initiative which may encourage small businesses to take on some staff.

    Using the 2013/14 national insurance thresholds, one employee could be taken on next year earning a salary of £22,000 and the employer’s national insurance bill will remain at £Nil.

    Director-Shareholder Loan Accounts

    Any temptations to take a director-shareholder loan, repay it before corporation tax is charged on it, and then borrow another amount soon afterwards, so that not too much has in reality changed, will no longer be tolerated under a new anti avoidance rule effective from today. This is very important for forthcoming March 2013 year ends.

    On the other hand, loans can be made from April 2014 to employees and directors up to £10,000 (was £5,000) without an income tax cost. Even if the loan is under £10,000 it will still need to be repaid by director-shareholders before 9 months after the year end and not repeated to save a corporation tax charge.

    If you have staff who would benefit from a loan (and you have the cash and are willing to lend it to them!) this might be worth looking at as a way of giving some tax free value to your employees.

    Personal Tax Allowance – £10,000 – from April 2014

    As £10,000 is one of the Chancellor’s favourite numbers, the tax free income tax allowance has been increased one year earlier than predicted from April 2014.

    With the likelihood that employer’s national insurance will start at a much lower threshold and with the new £2,000 credit, there is a widening gap where the tax cost of a higher salary might start to be lower than the tax cost of dividends.  Perhaps this is the intention!

    Alternatively, where profits are made on rented profits, the £10,000 allowance will be a useful way to keep the tax on that property as low as possible.

    Seed Enterprise Investment Scheme

    The capital gains tax refund for the investor originally planned to last until March 2013, continues to be available into the next tax year, although at half the amount. This is a welcome extension which should help SMEs raise the finance they need.

    More information will come out in due course, so it’s always checking the detail before taking any action.

  • Setting Up a Company – 8 Things To Know

    We are seeing lots of examples of companies being set up incorrectly.

    Incorporation agents and companies house let you set up your company without many checks and balances.

    Here are 8 things you need to know:

    1. Nominal Value of Shares Has no bearing on the value of your company. What is a Nominal Value? Helpfully, it’s what it sounds like: Nominal. You can set up a company with £1 Nominal Value of Shares or 10 £0.10 shares or other combinations.
    2. Number of Shares Again, has absolutely no bearing on the value of your company. The value of your company will depend on several factors like Profit and Assets, not on the number of shares issued when you set up the company.
    3. Share Capital The Nominal Value of Shares x Number of Shares eg If you decide to have a £1 Nominal Value, and to issue 10 shares, say 5 shares for you and 5 for your spouse, your company’s Share Capital is £10.
    4. Amount You Pay Aside from the £15 charged by companies house, you also owe your company the total Share Capital referred to in 3. Eg £10.
    5. Directors and Company Secretary You only need to appoint one Director and you do NOT need a Company Secretary.
    6. Registered Office Any postal address, very commonly your home address.
    7. Articles Of Association Your Company’s Rule Book. If the companies house standard doesn’t deal with a situation which may occur eg you don’t want a shareholder to be able to sell his shares to anyone outside of the existing shareholder family, you need to build in a procedure either through amending the Articles or by setting up a Shareholders Agreement.
    8. HMRC Consequences As soon as you set up your company, companies house informs HMRC corporation tax. Instantly you have both companies house and HMRC deadlines to deal with. Make sure you know what they are.

    One client who had set up his company with 1,000 £1 shares, therefore now owes his company £1,000, said that he couldn’t believe how easy it was to set up his company.

    Our client has to either pay £1,000 to the company, strike the company off and start again, or once the company is profitable, sign a statutory declaration that the company will be able to pay its debts as they fall due and reduce its share capital. If the company isn’t profitable this is a further cost he can do without.

    It is great that we can easily set up companies, but do be aware of these pitfalls.