Content
U-Turns Galore
Premises, Promises
Filing Bonus
RIP: 0% Rate
His and Hers
Party Spirit
State Of The Union
VAT's The Point?
Going Dutch
Away Win For Revenue
WIP-Round
The Best Land Plans
Tax Free Gizmos
Where Theres A Will
Do You Work Here?
Out Of The Shadows
Sacrifice Works
Home Sweet Office
Sauce For The Goose
Blissful Ignorance
PC Or Not PC?
Lost On Penalties
Worth The Paper
Carry The Can
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In 2001, the Chancellor introduced a 0% "starting rate" of corporation tax on the first £10,000 of profits. By 2003, he realised that this was a great way of avoiding tax for small businesses, so he introduced the "non-corporate distribution (NCD) rate" which has applied a minimum tax of 19% on profits used to pay dividends for the last two years. Now, he appears to have listened to the protests that the complexities of the NCD rate outweighed the advantages of the 0% rate, and he has abolished both with effect from April 2006. This is announced as a "simplification measure" - which is a bit rich, as he complicated things in the first place. This means that corporation tax will go up for businesses which make less than £50,000 profit in a year and don't pay it out as a dividend - in particular, for a business that makes £10,000 a year, the tax goes up from £0 to £1,900. However, there are still significant savings in overall tax and national insurance for most small businesses which operate as a company and pay dividends, rather than running as a sole trade. We can work out the numbers if you want to see how much the saving is. There is one planning point: if you are currently subject to the NCD rate, it is likely to be better to delay the payment of dividends until after 31 March 2006. We don't have the final rules for the abolition of the rate yet, and it may be that there will be a catch, but a dividend paid before 31 March will definitely suffer the NCD rate of 19%. If the profits are made in the company and not paid out until after the NCD rate is abolished, there is a possibility that the profits will get the benefit of the 0% rate, either in whole or in part. We hope that this will be clarified in the Budget, and we can give you more exact advice when the rules have been announced. |
© Bayar Hughes & Co., 2010.