Key issues for owner-managers
Tax and National Insurance rates continue to rise. This means that many more people will be paying higher rates tax in 2011/12. For this reason, it may be sensible to consider, if you can accelerating income, such as dividends, if possible, by bringing them into 2010/11,
Where directors are paying low salaries and topping the balance up in dividends they will want to:
• Check that they have optimised their position for 2010/11.
• Devise new schedules in order to maximise their allowances in 2011/12.
2011/12 changes to tax rates & allowances
• Changes to personal tax allowances and tax rates for income tax in 2011/12 will potentially see more taxpayers paying tax at the higher rates of 40% or 50%.
• In 2011/12 all earners and employers will see National Insurance increase by 1%.
Income splitting
Have directors with spouses (or civil partners) used up their personal allowances, basic rate bands and optimised their tax allowances this year?
• Do they need to consider a re-division of income producing assets before the start of the new tax year?
• Should the company issue different classes of share to ensure that dividends can be voted to different shareholders on a flexible basis?
• Do they need to execute any dividend waivers ahead of 2011/12
Marginal tax rates
Where it looks as if a director will lose his personal allowances in a year (where income is in excess of £100,000) or start paying tax at 50% he can consider these options for reducing tax:
Loans to directors – take a loan instead of a salary in March
• Providing that the outstanding balance is not in excess of £5,000 there will be no taxable benefit when the company lends the director cash.
• The amount should be agreed in a board meeting.
• Repay the loan within nine months of the company’s year-end to ensure that the company does not incur an additional tax charge.
Pension contributions
Ensure that pension contributions are calculated correctly:
• The Special Annual Allowance anti-forestalling measures affect irregular contributions made by higher earners 2010/11.
• Changes to pensions Annual Allowances ahead of the 2011/12 tax year, place restrictions on the amount of contributions that can made after 14 October 2010. These potentially affect anyone who is considering making a contribution in excess of £50,000.
Review tax compliance -Unlawful dividends
HM Revenue & Customs are reviewing dividends to ensure that they are voted correctly. If a dividend is paid out illegally, HMRC will generally assess the company to PAYE and NICs on the basis that it is a cash advance of earnings.
Check that the dividends are properly voted and constituted, with accounts in place in order to confirm that dividends are not paid out illegally.
• The tax consequences of an unlawful dividend depend on the company’s status and whether an unlawful dividend is repaid by the shareholder.
• This looks as if it will provide a rich source of pickings for HMRC: proprietors keep an eye on your drawings.
Employee benefit trusts (EBTs)
If a director or his family has received any benefits from an EBT these should be reviewed in the light of new measures introduced in November 2010.
Salary bonuses
Watch the timing of bonuses.
• Consider tax position if a bonus is due for payment (or credited to a loan account) before 5 April 2011.
• If the bonus is to be deferred and paid in 2011/12 consider the added cost of NICs.
Savings, investments and gift-aid
• Consider investing in ISAs, or topping up ISA investments up to annual limits, in order to avoid any future higher rate tax on savings income.
• There is still time to invest in Enterprise Investment Scheme (EIS) companies in order to secure 20% income tax relief.
• Donations under gift-aid will attract tax relief.
