Taking money from a limited company has become more complicated and more expensive since the implementation of dividend tax with effect from 6 April 2016.

Quite apart from keeping advisors on their toes, the tax has already had two changes in the tax free dividend amount and has meant that businesses operating through a limited company, if you take the corporation tax and the dividend tax together as the effective rate on the entrepreneur, means that successful small to medium businessmen and women pay tax at a very high rate on any income derived over the basic rate band, which although this has been increased substantially for the current tax year, does little more than compensate for the fact that the tax free dividend allowance has been reduced from £5,000 to £2,000.

A few years ago, I decided to write to my local MP to get his viewpoint on the fact that if I wish to extract monies from my own company more than £43,000 per annum, that I would effectively pay tax at over 50% on the margin on amounts up to £100,000, and greater still beyond that, whereas if I were a high earner such as a Premier League footballer, the maximum rate of tax I would pay would be 47% (including NIC).

This clearly perplexed my aged local MP who transferred the matter to the Treasury. I was then forwarded a reply from the Treasury Secretary to say that he did not really understand what I was complaining about as corporation tax rates had reduced by 6% over a couple of years.

That Minister has now been moved on twice to other departments. Perhaps just as well!

Either he or his close advisors clearly did not understand that at the time the corporation tax rates for small companies were different from those making large profits.

We are now faced with even more political uncertainty than that with which we have been living over the last three years and despite which by and large, based on our client base at least, businesses have been trading fairly profitably, albeit with the constraint of having to watch drawings from owner managed businesses very carefully and establish policies with clients as to their wishes as to how much tax they want to pay.

We now have a new Prime Minister who is promising to increase basic rate tax band from £50,000 to £80,000 which on the face of it may offer a great opportunity, albeit possibly only short term, for we owner managers to extract more money from our own companies, although one has to wonder whether the increase in the basic rate band may be matched by increases say in the rate of dividend tax.

The point is that we are all living in times where we are not able to plan effectively on any sort of a long term basis and advise our clients accordingly. We can as advisors only comment on where we are now bearing in mind the backdrop of potential changes which have been announced but which may never see the light of day. Sadly, it seems to me that it is unlikely that this pattern of uncertainty and constant change in tax rates is likely to settle down any time soon.

And on the subject of change, we have just been through a month where we have all been filing many clients’ first VAT returns under Making Tax Digital.

Overall, this has gone well, but I have to say only thanks to the very determined efforts of my team (I cannot take any credit for this myself) but the effort of converting some clients from manual records or non-digital records to meet the current requirements has not been easy.

We have a number of clients for whom conversion is virtually impossible and where we have used the bridging software which is of course only a temporary measure. However, whilst interviewing candidates recently, it is apparent that many smaller practices have not embraced the new technologies at all and are filing all their clients’ VAT returns through the bridging software.

I am however mystified as to how HMRC have set the procedures up for filing MTD VAT returns.
MTD is imposed by statute on businesses who are over the compulsory that registration threshold. Businesses below the threshold are not subject to MTD. However, businesses which must compulsorily follow this new procedure are required to register in order to be able to comply. Now, I do not know the percentage of VAT registered traders who are voluntarily registered as oppose to those which are compulsorily registered but even if it is as high as 10%, which I very much doubt, surely the onus should have been on those businesses registered for VAT who do not need to comply with MTD regulations to register not to do it. We also have a client who was registered for MTD but files his VAT return under the old method anyway which has been accepted. Can anyone explain the logic of dealing with MTD this way round?

There is clearly quite some way to go before MTD can be considered to have been successfully embedded into current practice.

Finally, we are hurtling towards the deadline for registering for PPI claims. I do not think I have got a claim myself but I have registered with one of the many advertisers as they will not charge me if they find nothing so it seemed a bit churlish not to join the party so to speak. However, I do not understand, if all of these financial institutions have mis-sold policies, why are they not obliged automatically to refund the ill-gotten gains to all relevant customers rather than the customer having to apply for a refund?

Anyway, to conclude more change will undoubtedly be upon us soon but it is the continuing uncertainty which is very bad for business and our clients.

Tags: UK200

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