In last year’s Budget the Chancellor, George Osborne, announced changes to taxing company dividends and in his Autumn Statement he indicated the Government’s intention to change, in certain circumstances, the tax treatment of distributions from a company in liquidation.
The first of these changes to taxing company dividends takes place on 6 April 2016, which will introduce an additional tax charge on dividends of 7.5% to bring the taxation of dividends more into line with the taxation of income generally. This is in response to the governments concern that companies are avoiding employers and employees national insurance (NI) payments by remunerating their directors/shareholders by way of a nominal salary, below the NI threshold, plus dividend payments which are not subject to NI.
The second change, which is likely to be introduced in the next budget, is to alter the tax treatment of certain distributions in a Members Voluntary Liquidation from a distribution taxed at Capital Gains Tax rates (which may be as low as 10% if Entrepreneurs Relief is claimed) to a dividend taxed at Income Tax rates (which may be as high as 38.1% for higher rate tax payers).
The targets for this change include companies where cash deposits have been built up which are not required for the ongoing use of the company, and which in other circumstances would have been distributed as a dividend to shareholders. Typically a business owner may choose to retain funds in the company until such time as it is liquidated and the funds distributed as a capital distribution, thus saving tax. The proposed changes are wide-ranging and could affect a large number of companies.
The solution for business owners with a company which may be affected by these changes is to take professional advice as a matter of urgency and, if appropriate, place the company into Members Voluntary Liquidation and distribute the company’s reserves before the changes come into effect.
At Hart Shaw we can assist business owners in placing their company into Members Voluntary Liquidation and ensure that a capital distribution is made as soon as possible.
When taking instructions we can provide a fixed price quotation for the fees and disbursements involved so that there are no unpleasant surprises and we will agree the timing of distribution payments to shareholders.
The whole process will be carried out as smoothly as possible and can be implemented very quickly.
For further advice please contact Christopher Brown at Hart Shaw, Europa Link, Sheffield Business Park, Sheffield, S9 1XU – T: 0114 251 8850 – email: firstname.lastname@example.org.
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