Member Article

Tees Valley firm issues tax warnings

A Tees Valley firm is warning companies about getting into tax trouble when paying dividends.

Waltons Clark Whitehill, a Hartlepool-based firm of accountants and business advisers, is urging companies to review current procedures when it comes to dividends.

They also want to draw the attention of companies to changes to tax rules when offering short-term loans to shareholders or directors.

George Hardey, a tax expert at Waltons Clark Whitehill, is encouraging companies to review their procedures and implement a simple set of steps when it comes to paying dividends to try to prevent subsequent problems with Her Majesty’s Revenue and Customs (HMRC).

He said: “In light of HMRC’s enquiries into perceived tax evasion and avoidance in small and medium sized companies, it is vital to have proper procedures in place when a business owner is trying to arrange their affairs in a tax-efficient manner, sometimes involving modest salaries for directors and payments of dividends to shareholders.

“Although this kind of strategy is common and there are few formal requirements to report the payment of dividends, other than as income within tax returns, it is still necessary to ensure that company law requirements are met.

“Properly documenting dividend payments throughout the year is particularly important.”

HMRC also feels there is abuse of the tax system when a close company makes a loan to a participator (generally shareholders/directors).

The company is charged at 25% corporation tax on the amount of the loan outstanding at the end of the accounting period, but the tax charge is reduced proportionally if any repayment is made within nine months.

HMRC feels repayments and new loans are made to manipulate the possible tax consequences with the intention of reducing tax liabilities.

With the introduction of new rules in effect from the Budget, where basically the repayment will in many circumstances be ignored when calculating corporation tax liabilities, companies need to consider the impact these new rules will have on their cash flow because of what could be an unexpected increase in corporation tax.

Hardey also warned that HMRC could soon introduce further changes to this area of taxation.

A consultation exercise is currently underway that would see the current temporary 25 per cent corporation tax charge on the type of loans mentioned above increased to 40 per cent or altered to a permanent 5 per cent annual charge.

Hardey advised that companies should keep a wary eye on this area of the law and watch for possible announcements in the Government’s Autumn Statement later this year.

This was posted in Bdaily's Members' News section by Martin Walker .