Is the latest tax avoidance legislation giving you shivers?

As the Spring Budget looms, new tax avoidance legislation has sent shivers across the accountancy and financial services industry, writes Stephen Outhwaite, tax dispute consultant at Pierce Chartered Accountants.

To clamp down on the so-called tax avoidance industry, the government is currently introducing the following changes:

  • Making further attempts to tackle the disguised remuneration tax avoidance schemes based on transactions with no commercial purpose, manufactured paperwork, expenses for attending non-existent meetings and other ‘creative’ means.
  • Imposing a 100% fee-based financial penalty on ‘enablers’ of tax avoidance schemes, targeting all professionals in the supply chain including accountants, financial planners and lawyers.
  • Removing the defence against penalties of ‘reasonable care’ for those who rely upon ‘non-independent’ advice provided by the enablers of defeated tax avoidance schemes.
  • Introducing a new legal requirement to correct a past failure to pay UK tax on offshore interests within a deadline.

Many professional practices are feeling nervous about the changes with the principle concern being where the courts will draw the line between legitimate tax planning and tax avoidance.

Practitioners could be exposed to financial penalties for their full fee in relation to advice on a tax arrangement which is subsequently defeated by HM Revenue & Customs (HMRC), as well as the risk of being ‘named and shamed’ in the press. Revised professional standard guidelines issued by various accountancy representative bodies advise extreme caution in these matters.

At Pierce, we have the specialist expertise to offer support and guidance for colleagues in professional services who may be impacted by these new measures, or have clients who are effected.

Don’t miss once in a lifetime opportunity to reduce your tax bill

Dividend

Don’t miss once in a lifetime opportunity to reduce your tax bill, says Anne Wilson, senior tax manager of the tax department at Pierce Chartered Accountants

Chancellor George Osborne’s July 2015 budget contained bad news for the many business owners who pay themselves a low wage, complemented by a dividend payment, in order to minimise their personal tax bill.

As of 5 April 2016, the rules are changing. The notional 10% tax credit on dividends will be abolished, and the rates at which dividends are taxed will increase.

Basic rate taxpayers currently pay no additional tax on their dividends, while higher-rate taxpayers pay tax equivalent to 25% of the net dividend and additional-rate taxpayers pay tax equivalent to 30.55% of the net dividend.

Window of opportunity

From April 2016, the first £5,000 of dividend income in each year will be tax-free, with sums above that taxed at 7.5% for people who pay tax at the basic rate.

Higher rate taxpayers will pay 32.5% and additional-rate taxpayers 38.1% per cent.

Although it will still be more tax efficient to draw a low salary and top up with dividend income, the benefits will not be as significant as at present.

That leaves a window of opportunity that is closing fast.

Accelerated Dividends

We will be discussing with our clients whether they should take the opportunity to accelerate their dividend payments to before the end of the current tax year.  The dividend can be left on a loan account with the company and drawn down in future years.  However it should be noted that this will also accelerate the tax liability on the dividend to 31 January 2017, so each client’s circumstances need to be considered.

As a rule of thumb it will be more beneficial to accelerate a dividend payment to before 5 April 2016.

Soften the blow

The truth is that most director-shareholders will be worse off as a result of this change. Business owners should draw as much as possible in dividends before the new rules take effect. Time is running out if you want to soften the blow.