# Increased tax on shareholder dividends....



## r1 (Oct 31, 2002)

In the chancellors pre-budget speech in December he announced that he was going to ensure that companies pay the 'right' amount of tax which has widely been interpreted as meaning that he will increase tax on shareholders of unquoted companies.

It is also thought that this will manifest itself in the form of NI payments on dividends.

I consider this a disgrace. However, this is not a flame and so I'd like to hear on other peoples theories on the possible outcome.

Mine is thus:

Increase Corp tax by 1%.

eeNI payments on dividends to be fixed at 5%.

No erNI on dividend payments.

It's going to be an expensive year....


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## T17S_TT (Jan 7, 2004)

I guess they had to come up with something after so many people managed to slip through IR35.It obviously didn't generate the money that it was expected to!!!


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## r1 (Oct 31, 2002)

> I guess they had to come up with something after so many people managed to slip through IR35.It obviously didn't generate the money that it was expected to!!!


True. However, I don't believe this has been set up to tax single person companies in the same way IR35 was. This has much more broader 'shareholder' implications.


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## T17S_TT (Jan 7, 2004)

Maybe I have got the wrong impression then,
I was led to believe that the new taxes IR591 would apply to close companies( with less that 5 shareholders) therfore taxing the single person companies that escaped IR35.
Or perhaps I have totally got it all ar5e about face and we are talking about different things!!


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## vlastan (May 6, 2002)

How much is the corporate tax at present? Is it about 23% or am I wrong?


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## r1 (Oct 31, 2002)

> How much is the corporate tax at present? Is it about Â 23% or am I wrong?


Near enough - it's stepped tho depending on the level of profit.


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## neilp (May 7, 2002)

> Maybe I have got the wrong impression then,
> I was led to believe that the new taxes IR591 would apply to close companies( with less that 5 shareholders) therfore taxing the single person companies that escaped IR35.


This is also my understanding, I don't think it will effect people with XXX amount of shares in a private company held as an investment.

http://www.ir591.org.uk/WhatIs591.html

for more info


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## jonhaff (May 20, 2002)

so therefore find some trusted friends also contracting and increase the number of shareholder > 5 . solution ? no ir35 or 591.

I read it as ir591 will replace ir35. its not both.


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## Chip_iTT (Nov 14, 2003)

Some good writeups on this subject - which may (read proabably will) affect me  - on the PCG (who also run the IR5.91 site mentioned above) and Shout99 websites


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## r1 (Oct 31, 2002)

Ok I get the impression most of you guys are single person ltd co's.

Consider the case that you're a 'normal' director' that normally takes a large chunk (80-90%) of your income as dividends. The possibilities of this proposal are pretty massive - over 300,000 businesses are going to be affected.

I can't understand why the press haven't made more of this...when you do the maths it's hardly worth taking any dividends at all. Defeats the point somewhat!


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## jonhaff (May 20, 2002)

large comapnies usualy have a board of dir greater than 5. Its only us small co that get caught.

I agree its all unfair and whats the point of dividends.

I thought being a Ltd was about a separate entity and all Ltds being treated the same but this is not the case any more it all now depends what type of Ltd you are and how many dirs etc....

This is unfair legislation as was ir35 and not treating all Ltd the same as it was orignally intended.


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## Chip_iTT (Nov 14, 2003)

> How much is the corporate tax at present? Is it about Â 23% or am I wrong?


<10k NIL
10 - 50k 23% (marginal tax)
>50k 19%


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## T17S_TT (Jan 7, 2004)

If it is as bad as it seems we all might as well commit permiecide!!!!!!!!


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## vlastan (May 6, 2002)

> <10k NIL
> 10 - 50k 23% (marginal tax)
> >50k 19%


Where can I get all these rates from in more detail. I am interested to see the rules that apply for NI and the VAT implications (I think you deal with VAT only if you earn over 50k?)


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## Chip_iTT (Nov 14, 2003)

Inland Revenue stuff on corporation tax

Inland Revenue on NI

HMCE on VAT registration

Enjoy....NOT


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## vlastan (May 6, 2002)

Thanks Irving.


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## r1 (Oct 31, 2002)

> I think you deal with VAT only if you earn over 50k?)


Wrong. Earnings are irrelevant - it's how much you invoice thats relevant. Plus you can volunteer to be VAT registered at any stage - handy if you make a lot of purchases I'd imagine.


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## Chip_iTT (Nov 14, 2003)

> Wrong. Earnings are irrelevant - it's how much you invoice thats relevant. Plus you can volunteer to be VAT registered at any stage - handy if you make a lot of purchases I'd imagine.


True... but if your VAT on purchases exceeds your VAT on Sales by a significant amount for any period of time, expect a VAT audit... painful and not to be recommended....


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## r1 (Oct 31, 2002)

> True... but if your VAT on purchases exceeds your VAT on Sales by a significant amount for any period of time, expect a VAT audit... painful and not to be recommended....


Not strictly relevant but I had a VAT inspection last year and I was impressed. I thought it would a nightmare - visions of wrongly claimed staff entertainment, teabags, etc etc. However, the inspector was only at my office for 4 hours and left a happy chap.

If you're not fiddling the system and your accounts are in order there's nothing to worry about.


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## neilp (May 7, 2002)

> Not strictly relevant but I had a VAT inspection last year and I was impressed. I thought it would a nightmare - visions of wrongly claimed staff entertainment, teabags, etc etc. However, the inspector was only at my office for 4 hours and left a happy chap.
> 
> If you're not fiddling the system and your accounts are in order there's nothing to worry about.


I'd second this, I had one last year and was petrified they'd find something even though I don't do anything dodgy! The guy turned out to be a top fella and it was all done and dusted in a few hours


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## jonhaff (May 20, 2002)

same here i had one last year (they must be targetting TT owners!) 
I too was dreading it but 2 of them turned up and the only thing they found was that my accoutnant had switched 2 columns (the phone bill was down as accountin fees and acounting fees was in phone), the bottom line didnt change but they felt better they had found something!


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## Chip_iTT (Nov 14, 2003)

> visions of wrongly claimed staff entertainment


So they didnt pick up on that "director's marketing forum' in the Seychelles then?


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## r1 (Oct 31, 2002)

> So they didnt pick up on that "director's marketing forum' in the Seychelles then? Â


Shhh


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## 55JWB (May 7, 2002)

I'm not sure they will go the NI on Divi route :-/ I think we may end up with a system a bit like the US model.....

The Chancellor said he wants companies paying the "right" amount of tax.

In the US they simply look at what the turnover was, what were the associated costs and whats left is taxed at X% no matter how you take it Divi, Salary, Bonus etc....

Much more simple and highly effective :-/


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## r1 (Oct 31, 2002)

> In the US they simply look at what the turnover was, what were the associated costs and whats left is taxed at X% no matter how you take it Divi, Salary, Bonus etc....


Surely thats called corporation tax??? Or do they add back in the directors remuneration to profit?

If this is the case then it *could* be benficial to us. However the general consensus is that the shareholders will bear the brunt of the tax hikes and not the company...


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## 55JWB (May 7, 2002)

Does not matter how the Director takes his remuneration its taxed salary, bonus, divi all at the same rate.... so no adding back more like the self employed and partnerships, looks like in many cases no need for incorporation :-/


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## r1 (Oct 31, 2002)

> Does not matter how the Director takes his remuneration its taxed salary, bonus, divi all at the same rate.... Â so no adding back more like the self employed and partnerships, looks like in many cases no need for incorporation Â :-/


You've confused me now. Initially you said the tax was based on turnover and then costs were taken off. Then the implication was that the profit (with directors remuneration not accounted for) was taxed.

Now you've said that it's a straight tax on *all* of the Directors income be it Divs, PAYE etc.

It might be me being a bit slow this morning but could you ellaborate.

Cheers.


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## 55JWB (May 7, 2002)

Merely speculation the phrase getting companies paying the right amount of tax leads me to believe its not going to be a simple as NI on Divi's.

In the US for major shareholders they are treated a bit more like the self employed and the IRS look at turnover and operating costs and anything else is taxed directors remuneration is not included in the operating cost especially when he is 100% shareholder.


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## r1 (Oct 31, 2002)

Just read an article in todays Times that mentions this. The jorno implies that NI will be charged on Divs payable to sharreholders in small businesses.

Anyone have an idea what the classification of a small business is?


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## jonhaff (May 20, 2002)

maybe the definition they have been using up to now.... <5 director/shareholders??
maybe?


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## neilp (May 7, 2002)

> Anyone have an idea what the classification of a small business is?


Everything I've read is that the company is director owned and is currently classified as a 'close' business ie less than 5 shareholders.


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