Our newsletter this month covers the administration of dividends paid by small companies, coping with current delays in the VAT registration process, inheritance tax and business property and finally a note of tax free benefits which can be provided to retired employees by their employers.
Dividends – getting the paperwork right
If you run a small limited company and take part of your remuneration as a dividend, make sure you attend to the administration – get the paperwork right!
Dividends are treated as part of your income and as long as you remain a basic rate taxpayer there is no further tax to pay – in effect the company pays the basic rate tax for you. If you are a higher rate tax payer you will be assessed for the higher rate element in your annual self-assessment calculation.
When you make a dividend payment you need to generate two pieces of printed evidence:
1. Appropriate minutes sanctioning the dividend and
2. Dividend vouchers setting out the amount of the dividend, tax deducted etc.
If you don’t provide this basic evidence you may give the Revenue an excuse to change the status of the payment.
For instance they may assert that the payment was not a dividend but a loan to the director – this would create benefit-in-kind charges for director/shareholders and a 25% corporation tax charge for the company. (The 25% tax charge is recoverable but potentially there could be a considerable delay in receiving a refund.)
Alternatively if the dividend is a regular payment, say monthly, the Revenue may try to argue that the payment is taxable as shareholder’s salary. Assuming of course that the shareholder is a salaried employee or director. This would create unplanned National Insurance charges for the shareholder and the company, as well as income tax charges, with or without penalties.
VAT registration – coping with delays
H M Revenue & Customs are currently struggling to cope with the number of new registrations for VAT – there are considerable delays. Businesses that have sent in the VAT1 registration form may have to wait months before receiving their VAT registration number.
This creates a difficult issue for these businesses. If you are required to register by a certain date, you must account for VAT to be added to your sales from this date – unless you sell goods or services that are normally zero rated or if your trade does not normally issue VAT invoices, say a hairdresser. However you cannot issue a VAT invoice until you are notified of your VAT registration number.
You will also have to secure the co-operation of your customers.
Two possible strategies you could employ between the date you are required to account for VAT and the receipt of your VAT number from HMRC are set out in the following paragraphs.
1. Although you cannot charge VAT before you are registered or show VAT as a separate item on any invoices you issue, you can change your prices to include VAT. You will need to explain to your customers that you will be sending them VAT invoices later – the following words should be added to your invoice:
“This invoice is raised pending a VAT registration number. A full VAT invoice will be issued on receipt of the VAT registration number.”
Once you have your registration number you should send replacement invoices, showing VAT, within 30 days. If you have asked for voluntary registration you will need to start accounting for VAT from the registration date you asked for on your application form, as long as you actually made supplies/provided services from that date.
2. An alternative strategy is to issue your customers with an invoice that shows the net sale value (before VAT is added). Agree that you will send a further VAT only invoice when you are issued a registration number. This will require the co-operation of your customers as they will be processing, and hopefully paying, two invoices for each supply. (One for the net sales value and one for the VAT.)
If you need our help in setting up a “coping” process, to bridge the period before you receive your VAT number, do call.
Inheritance Tax and business property
Ordinarily business property qualifies for a 100% exemption from inheritance tax. This article highlights a particular problem for the estate of business property owners when the time comes to consider inheritance tax – usually date of death. The following comments only apply if you own the property personally and the property is used by your company or a trading partnership of which you are a member.
Accordingly if you have given away your shares prior to your death it is likely that no relief will be given.
It would of course be possible to transfer the property into the company’s ownership prior to your demise but this would trigger a stamp duty land tax charge and thus limit the effectiveness of the plan.
Of course in the real world other taxes need to be taken into account when planning for the acquisition and disposal of business property, particularly capital gains tax. If you are considering the purchase or sale of commercial property and would like to discuss strategies to minimise the inheritance tax and other tax risks please contact us and make an appointment to meet.
Post retirement benefits
On Budget Day the Revenue clarified its position regarding the provision of continuing benefits to retired employees. The following benefits will not be taxable. The first tax year affected by this announcement is the year ending 5 April 2007.
Non-taxable benefits are:
1. Continued provision by former employers of accommodation and related removal expenses.
2. Welfare counselling.
3. Recreational benefits.
4. Annual parties and similar functions costing up to £150.
5. Equipment for disabled employees.
6. Writing of wills costing up to £150.
7. Benefits where the right to the continuing benefit arose on retirement BEFORE 6 April 1998.
Tax Diary September/October 2007
19 September 2007 – PAYE and NIC deductions due for month ending 5 September 2007. (If you pay your tax electronically the due date is 22 September 2007)
19 September 2007 – Filing deadline for the CIS300 monthly return for the month ending 5 September 2007.
19 September 2007 – CIS tax deducted for the month ending 5 September 2007 is payable by today.
1 October 2007 – Due date for corporation tax due for the year ended 31 December 2006.
19 October 2007 – PAYE and NIC deductions due for month ended 5 October 2007. (If you pay your tax electronically the due date is 22 October 2007)
19 October 2007 – Filing deadline for the CIS300 monthly return for the month ended 5 October 2007.
19 October 2007 – CIS tax deducted for the month ended 5 October 2007 is payable by today.