Tax on ‘drawings’ Directors of a company will normally be paid a salary and this is taxed under PAYE as for all employees. The cost of this, including the employer’s NICs, is generally an allowable expense of the company. Shareholders of the company in contrast may be rewarded by the payment of dividends on their shares. Dividends are paid out of profits after taxation. Tax Tip In most small companies the directors and shareholders are one and the same and so they can choose the most tax efficient way to pay themselves. Using dividends can result in savings in NICs. However, this requires careful planning, especially given the increase in corporation tax rates. Please talk to us to decide what is appropriate for you.
Warning - close company loans to participators A close company (which generally includes owner managed companies) may be taxed where it has made a loan or advance to individuals or their family members who have an interest or shares in the company (known as participators). The tax charge is currently 33.75% of the loan if it is outstanding over nine months after the end of the accounting period. The tax charge is repaid to the company nine months and one day after the end of the accounting period in which the loan is repaid. Further rules prevent the avoidance of the charge by repaying the loan before the payment date and then effectively withdrawing the same money shortly afterwards. This is a complex area so please do get in touch if this is an issue for you and your company.
Tax Planning Ensure that sufficient salary and dividends are drawn from the business to prevent these charges arising unnecessarily on an overdrawn director’s current account. We can also ensure that overdrawn accounts are cleared properly. Please contact us if you would like to discuss the right options for you and your business. Employer obligations As an employer you will have many responsibilities. These will include employment law requirements and the need to enrol workers into a work based pension scheme (Pensions Auto Enrolment) which are not covered in this guide. Real Time Information Real Time Information (RTI) reporting is mandatory for almost all employers. Under RTI, employers or their agents are required to make regular payroll submissions for each pay period during the year. The submissions detail salary and other employment payments made to and deductions such as income tax and NICs made from employees. These submissions must generally be made on or before the date the amounts are paid to the employees. Penalties apply to employers who fail to make returns on time. These penalties range from £100 to £400 per month depending on the size of the employer. Interest and penalties also apply for failing to pay on time. The employer must also report details of expenses and benefits provided to employees.
Running a Business
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