HORNBEAM
HIGHLIGHTS
March
2004
Hornbeam Highlights is an
information newsheet for clients and associates of Hornbeam
Accountancy Services Ltd
Although, there are relatively few headline changes in this year’s budget there are a number of matters which we wish to draw to your attention.
Well
now we know what the Chancellor means when he says that owners of very small
companies should be paying ‘the right amount of tax’. The budget has introduced a rule whereby dividends must be paid
out of profits taxed at, at least 19%. The actual calculations look like being
rather complex – what else would we expect from Gordon Brown – but the outcomes
are perhaps not as bad as many of us had feared. Because the corporation tax rate for small businesses will not
exceed 19% and there is no National Insurance on dividend income the effective
rate of tax is still 11% less than the 30% (22% income tax plus 8% NI) paid by
sole traders and partnerships.
The
following table sets out the approximate savings this tax year and next.
Level
of profit Savings from
Incorporation
2003/4 2004/5
£ £ £
5000 0 0
15,000 3,000 1,100
25,000 3,725 2,200
35,000 4,450 3,300
50,000 7,000 7,000
Actual
savings depend upon the allocation of share ownership, how much profit is paid
out, and many other factors, but the pattern of savings is pretty clear
·
There is still a worthwhile saving from incorporation even
for very small businesses.
·
For businesses making £50,000 profit or more the benefits
are unchanged.
·
For businesses
making less than £300,000 profits dividends are still more tax efficient than
salary.
·
There may still be some exceptional opportunities provided
by very small companies, where for example profit is simply rolled up, perhaps
to invest in capital assets, or to repay a loan, or simply as a cash
investment.
·
However for businesses with profits of less than £15,000
which need to pay out dividends the advantages of incorporation are now small.
·
For proprietors of very small businesses wishing to wind up
their companies there are opportunities to look at further tax savings, for
example by means of paying (tax exempt) redundancy
From 5 April 2007 there is a new regime for taxation
of company vans. Again this does not look as bad as many had
feared. Van drivers will have a stark
choice, if they are allowed any
private use of the van (apart from the home to work journey) they will be taxed
on a £3,000 benefit, plus a further £500 for fuel, but if they have no private use apart from home to work
they will no longer have any taxable benefit.
This ability to opt out of the benefit actually starts from 5 April 2005, and for many company van drivers
will be an attractive opportunity to save £110 of tax.
For
those lucky employees who receive company double-cab pick-ups then your £500
benefit continues for a further 3 years, after which a £3,500 benefit is still
much more favourable than the company car tax regime.
Tax
Avoidance is the (legal) ordering of ones affairs so as to minimise the amount
of tax one pays. It is what we do for
our clients every day of the year.
Agreeing with your company van drivers that private use will be banned
in order to save them £770 tax is tax avoidance, and is perfectly legal. Certain city firms of Bankers, Accountants,
and Lawyers package up some very complex schemes that can save massive amounts
of tax. The partners of this firm (and
many other local firms) have always been very sceptical of such schemes on the
basis that two things are certain – a large up front fee and the fact that the
authorities will attack the scheme when they find out about it. – almost
everything else is uncertain, and the risk to the tax-payer and the agent is
simply unacceptable.
Jackie
says, VAT notes 4 of 2003 contains some nasties of which VAT registered clients
may not be aware. In particular from 1
January 2004 VAT invoices have been required to show the ‘unit price’. All VAT queries can be made to the National
Advice Service on 0845 010 9000 and the leaflet directs readers to the VAT
website at www.hmce.gov.uk.
We
are pleased to welcome Nicola Cooper who is a qualified and experienced tax
practitioner onto our team. Similarly,
we welcome Beverley Hill as our new receptionist and PA and wish Anne Reeve
every success in her new job, just around the corner from Hornbeam.
Most
of the information contained in this Hornbeam
Highlights is of necessity greatly oversimplified. We are trying to bring
to your attention tax planning opportunities.
However, you should not take action based upon this leaflet without
obtaining specific professional advice.
Whether you are a client or not, if we can provide further help or advice concerning any of the matters covered here, please do not hesitate to telephone us on (01603) 720424. Back Issues of Highlights and many other things can be found on our website at hornbeam-accountancy.co.uk