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What will the Taxman do now to Attack Small Companies?
Newsletter issue - August 07.
The Taxman is a bad loser, and after a big defeat like Arctic Systems it is quite likely the tax law will be changed. In fact the Treasury has already announced that they will be looking to change the law to prevent people splitting income between themselves in an unfair way. However, the Treasury spokesperson has also said that they do not want to disturb commercial arrangements.
What should you do now?
- Don't Panic. The House of Lords decision stands until the law is changed, and if any change is made it probably won't come into effect until April 2008. Anyway you have little to worry about if you and your spouse/civil partner are both actively involved in running the business, in other words the ownership split of the business is a commercial arrangement.
- If you and your spouse/civil partner own all the shares in your limited company, examples of precautions to take to help ensure that your arrangements are water tight and commercial include...
- You should both be appointed as directors of the company. This means you are both responsible for the running of the company so collectively make important decisions, such as how much dividend to pay, or which contracts to take on. Record all these decisions so you can prove to the Taxman that you are both actively involved in the key business decisions.
- Make sure you and your spouse/civil partner both hold ordinary shares in the company whose rights are not restricted in any way.
- Follow the correct procedure when paying dividends to ensure they can't be reclassified as loans. The directors need to check there are enough profits in the company to pay the dividend, suggest an amount to pay, then the shareholders can vote on whether to pay it out. Dividend vouchers should be prepared and given to the shareholders when the dividend is paid.
- If you want to bring your spouse/civil partner into the business as a shareholder, so you can divide profits between you, come and discuss the matter with us first. However we recommend you should think through the following points...
- Will giving away some of the dividend income actually save tax? If your spouse/ civil partner already has enough income to cover most of their basic rate tax band, there is unlikely to be much tax saving.
- Think about what may happen to the business should you divorce or separate.
What our clients say about us...
"Paul has provided accountancy services to my company for 2 years now. I can recommend Paul very highly; his skills as an accountant are highly detailed and professional and he is always available to provide advice. One aspect of the way Paul works that I greatly appreciate is a preference to meet face to face when there is a detailed conversation to be had. I personally find this more productive and is a benefit of working with a small accountancy firm that you wouldn't get with the large faceless providers."
ALISTAIR FAIRWEATHER - PROGRAMME & PROJECT MANAGER, DELIVERING/RESCUING I.T. 7 BUSINESS CHANGE WITH BUDGETS UPTO £50M INC SUPPIER MANAGEMENT
"I couldn't ask for more from Paul as an Accountant. Paul has been accountant to Work Relief Charity Recruitment for just over a year now and is proving an invaluable asset. Accurate, knowledgeable, flexible with an emphasis on service delivery, I would recommend Paul's services to any organisation looking for an accounts professional."
Neil Price - Managing Director at Work Relief Charity Recruitment
"Paul was a referral from a family member when I started my business 2 years ago. As this was the first time I had ever run my own company I was totally clueless over the financial side of matters and was worried that I may have made mistakes in any of my accounting. I needn't have worried as after enaging Paul for a set monthly fee he was always there on the end of the phone for all sorts of questions I had and no matter how trivial they were Paul gave me all the information I required and more and did an excellent and painless job at the end of my first year! Couldn't ask for any better to be honest. Just two words - hire him!!!"
Lee Westrap MBCS - Director - Bulldog IT Services
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