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taxation


Tightening of tax concessions will cost SMEs


Oxfordshire and Buckinghamshire chartered accountants, Whitley Stimpson, warns SMEs of new tax implications associated with winding-up a business following HMRC’s legislation which restricts tax concessions


Previously, directors were able to wind-up a company without appointing a liquidator and could pass surplus funds to shareholders as capital, which was then subject to capital gains rather than income tax.


However, The Enactment of Extra- Statutory Concessions Order 2012 (passed in the House of Commons in March 2013), will only now allow this capital treatment with total distributions under £25,000.


“Reading the legislation carefully, one can see that distributions made in anticipation of dissolution of the company will all count towards this £25,000 limit,” commented Owen Kyffin, partner, Whitley Stimpson. “The moment that distributions exceed £25,000, all of the distributions will be taxed as dividends, and this could lead to an additional tax liability.”


It is not yet clear what would happen if a company distributed all but £25,000 as ordinary dividends, then applied to Companies House for dissolution, and distributed the remaining £25,000 as capital receipts under this new section.


HMRC could argue that the intent to strike-off the company pre-dated the actual application to dissolve the company, therefore the amount of any prior dividends should be taken into account when determining whether the £25,000 limit has been breached.


Kyffin continued: “As this legislation is relatively new, the £25,000 cut-off has not yet been tested in tribunal and therefore there is no guidance on the question of intent. The current answer is to examine each case on its own merits until practice develops. We strongly urge directors


Understanding the rules


“That’s not fair!” said my assistant (not for the first time) when I explained how a particular tax rule worked. The answer to a tax question might well be unfair or illogical (and not what politicians expect), but these are the rules we have to work with, writes Stuart Robb, regional tax partner, Baker Tilly


A tax adviser’s job is to understand how the rules work and advise a client how they apply to their situation. There are often several ways of achieving the desired result, so it should not be surprising if the well-advised taxpayer chooses the route that has the lowest tax cost.


I am not talking about dubious arrangements entered into solely to reduce tax, but carrying out everyday transactions differently. So for instance, if you’re going to sell shares with a capital gain of £20,000, you could reduce your tax bill simply by selling half of the shares in March 2014 and the other half in May 2014. Most would regard this as simple common sense.


Talking of which, it amazes me how many company owners I come across that continue to pay


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themselves substantial bonuses through the payroll rather than have the company pay dividends. The tax saving is not huge, but the cashflow benefits can be.


One client was struggling to raise bank finance for a project. On reflection, we decided it didn’t need to. By scrapping the proposed bonuses and replacing them with dividends, there was no need to pay the associated PAYE and NIC in July 2013 as the income tax payable on the dividends is not due for payment until January 2015. This 18-month delay enabled the company to fund the project itself.


If the high street bank won’t help you, have you approached the “bank of mum and dad”? The income from their retirement savings will have plummeted over the past few years


and their capital will eventually suffer 40% inheritance tax (IHT). So here’s a thought, why not get them to invest in your company and then give them a reasonable return? Both of you will be happy and you might even succeed in reducing their IHT into the bargain.


Many people reading this no doubt sleep easy in the belief that the shares in their trading company are exempt from IHT or would attract only 10% capital gains tax if they sold them. Unfortunately, these reliefs are a bit like VAT: incredibly simple in concept but extraordinarily complex in practice. I’m not joking. Take advice, understand how the rules work, force yourself to re-read your company’s Articles, and if there is the slightest doubt about your eligibility take action quickly.


to seek guidance and advice before embarking on what could be a far more costly route.


“It may well be that the cost of going through a formal winding up rather than a striking off procedure could pay for itself many times over in tax savings if capital treatment can be obtained along with entrepreneur’s relief thus obtaining a 10% tax rate.


“Alternatively, it might be that the company could be run on, and the cash distributed out over the course of a number of years as dividends, but making sure these fall within the basic rate band so that no additional tax is payable at all.”


Kyffin stressed each case was individual in its own right and must be examined as such to make sure the best outcome possible for all of the shareholders.


Whitley Stimpson offers a comprehensive range of financial management services, and regularly advises companies of all sizes on best practice in the many different facets of accounting. The firm’s keen emphasis on working in partnership with its clients helps small businesses to derive the maximum benefit from its services.


For further information or to arrange a free initial consultation contact Owen Kyffin.


Details: Owen Kyffin 01295-270200 Twitter: @OwenKyfin www.whitleystimpson.co.uk


Most tax planning involves spending cash (100% tax relief on capital expenditure is attractive, but you will still be out of pocket). This means that you should use property specialists to maximise the capital allowances claim on buildings you already own; ask experts to help you identify and quantify your research and development tax claims on money you’ve already spent; implement salary sacrifice arrangements to save NIC on pension contributions you have to pay anyway; and think seriously about the tax relief you can get simply by issuing bits of paper (called shares) to senior staff.


My assistant will eventually come to accept that the tax rules can sometimes be unfair, but I hope she will also realise that a taxpayer is always free to change their mind and have a different future.


Details: Stuart Robb 020-8461-8000 stuart.robb@bakertilly.co.uk www.bakertilly.co.uk


THE BUSINESS MAGAZINE – THAMES VALLEY – NOVEMBER 2013


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