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Tax Planning

Her Majesties Revenue is Criminal!

I have always hated saying, “It’s not fair!” Whether it is a poor refereeing decision that costs your team the game, heavy traffic making you late for an important meeting or the tightening of tax legislation. My view is always the same. You win some – you lose some! I believe that planning for the unforeseen harshness of life is the best way to manage it and rise to the challenge of any adversity it presents.

Businessman hands pulling folder Tax concept on brown wallet.
HMRC ethics??????

This takes unfair to the point of unethical!

You remember back at school when someone was writing rude words in the toilets, stealing stationery or letting off stink bombs in the corridor? Then, when no one owned up or was prepared to squeal the whole school suffered the consequences? It was a stupid way to deal with the problem back then and it is still an affront to decency today. Why not put more effort into finding and making the real culprits pay?

When the new Tax on Dividends was first announced, it arrived with what felt like a sweetener, in the shape of the £5k Dividend Tax Allowance. As the details emerged, however, it turned out to be a bitter deception cunningly disguised as an ‘allowance’ but really being a zero rate tax band.

Did they really think no one would work out the implications of this?

Setting the Scene: From 6th April 2016 company directors will be entitled to a £11k tax-free personal allowance; a basic rate tax band of £32k; and the higher rate from £43k up to £100k (don’t get me started on the 60% tax rate above that!). However, despite the original inference that there would be an additional £5k tax-free dividend allowance, it turns out it simply means the £32k is, in effect, reduced to £27k.

Give me the numbers (not %) I hear you think!

This means that, if you take dividends from your company up to the higher tax threshold of £43k, you will be liable for an additional tax payment of £2025 per year (£27k x 7.5%).

This is a harsh burden for sure, but it is the dishonest presentation of the news that really gets my back up here. But I haven’t finished because IT GETS WORSE!

Welcome to HMRC’s scattergun attack on tax avoidance

Pay as you go taxation!!!!! There are two reasons that HMRC are doing these things. Firstly, raising the country’s tax revenue to pay for the economic recovery. I get this – Up to a point. Secondly, it is to try and cut down on tax avoidance. This is where my school days punishment analogy comes in.

How can it be right to burden honest, hardworking small business owners (who contribute massively to the health of any economy) in an attempt to catch out the rogue traders? Surely, there must be a better way.

Here is the REAL KILLER, though!

At the time of the original announcement of these changes coming into effect on 6th April 2016, the assumption was (as is the present system) that no payments would be made until 31st January 2018 under the self-assessment system. At least, that way business owners would have time to prepare. But no!

HMRC (Her Majesty’s Revenue is Criminal) are issuing new tax coding notices and planning to estimate what you will owe, based on your 2015-2016 figures. And then get you to pay the tax as you go!

That is both scandalous and will, almost certainly, threaten to put some small companies straight out of business. Remember two-thirds of small businesses fail in Year One; and most of them because of cash flow.

And then there’s the additional red tape that this will bring to pile even more misery on the small business owner.  For years, contractors in particular, have been able to avoid the burden of making monthly PAYE payments to HMRC but now that’s going to be an additional task for them to complete also attracting the usual array of fines and penalties if not done in a strict time fashion.

Where is this going to end? What will be the next attack on almost every small business, as the Government attempt to stop a handful of dodgy ones? More restriction of the valuable tax reliefs we use each year? Scrapping the flat rate scheme for VAT? Changing the Self-Assessment system so we all pay tax in advance and on estimated figures? Accelerated payment notices on dividend income?

What next?

Well, I’ll tell you what we’re going to do.  We’re not happy having clients paying PAYE every month when they could be out earning profits.  Our plan is to prevent HMRC from insisting that the new tax code is adopted, complete 2016 tax returns for clients and, at the same time, estimate the size of the tax bill that will be coming on 31st January 2018 to give clients the maximum possible heads-up.  You might want to ask your accountant to do the same!