Owner managed company, Alcohol wholesalers and producers, Labour providers warning

Now is a good time to help your clients plan their taxable income in 2016/17. The rules for NIC, and tax on dividends are changing, so all arrangements for extracting profit from owner-managed companies must be reviewed. Clients who sell alcohol wholesale need register with a new Government scheme, which you can help them prepare for. Finally, we pass on a warning about VAT fraud in labour supply chains.

This is an extract from our topical tax tips newsletter dated 4 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Owner managed company 
The combination of tax and regulation changes coming into effect in 2016/17 mean that every small company should review the remuneration strategy for its owners. Let's look at each factor briefly: 
  
Salary 
Paying a salary just below the NIC primary threshold of £8060 will preserve entitlement to the state pension, and incur no employee or employer's NIC. Any payment above the secondary threshold (£8112) will incur employer's NIC, but where the company has only one employee the employment allowance won't be available to cover that NIC.   
  
Dividends 
Any dividends received by a shareholder in excess of £5,000 will create a tax charge for that person being 7.5% more than they paid on the same cash dividend in 2015/16. As the 10% dividend tax credit is abolished, the shareholder will be able to receive more cash as a dividend before tipping into higher rates of tax (32.5% on dividends). 
  
Rent 
Rent is taxed at the normal rates of: 20%, 40% and 45%, but without NIC. Where the premises the company trades from are owned personally by the shareholders, a payment of rent should be considered as an alternative to some dividends. The company will receive a tax deduction for the rent paid. But entrepreneurs' relief on the gain arising on the premises could be restricted, if the building is sold alongside company shares in the future.     
  
Pensions 
As a person aged 55 and over has complete flexibility to withdraw cash from their pension fund (subject to charges), employer pension contributions are a very attractive option for the older director. The contribution is tax deductible for the company and attracts no tax or NIC for the employee, as long as the individual's pension annual allowance is not exceeded. This favourable treatment of pension contributions may not last.   
  
The ideal combination of these factors will vary for each owner/ director, according to their personal income needs and the profitability of their company. Our personal tax advisers will be happy to talk through the implications of each type of payment in greater detail. 

This is an extract from our topical tax tips newsletter dated 4 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>