If the payment of bonuses to directors or dividends to shareholders is under consideration, give careful thought as to whether payment should be made before or after the end of the tax year. The date of payment will affect the date tax is due and probably the rate at which it is payable.
For many director-shareholders, the tax cost of receiving a dividend next tax year will be higher than the receipt of a dividend this year. If you do not currently extract all the company profits as a dividend you may wish to consider paying higher dividends before 6 April 2016 to utilise the current lower dividend tax rates. However, other tax issues may come into play, for example the loss of the personal tax allowance if your total 'adjusted net income' exceeds £100,000. There will also be non-tax issues such as the availability of funds or profits in the company to pay the dividend.
Please contact us before you make any decisions about changing the amount of dividends taken so that we can advise on the best approach for you.
Consider the payment of a pension contribution by the company. This is generally tax and NIC free for the employee (but see Pensions section). Furthermore, the company should obtain tax relief on the contribution, provided the overall remuneration package is justifiable.
It is common in family companies for a director-shareholder to have 'loan' advances made to them by the company (eg personal expenses paid by the company). These are accounted for via a 'director's loan account' with the company which may become overdrawn.
Where the overdrawn balance at the end of an accounting period is still outstanding nine months later a tax charge arises on the company equal to 25% of the loan. Where the balance is repaid there is no tax charge.
Complex rules exist to catch certain arrangements, for example where loan balances are repaid but shortly afterwards the company provides another loan to the shareholder. These rules do not apply where there is a genuine repayment through the award of a valid bonus/dividend.
If you are concerned about whether the tax charge could apply to your company, we would be happy to review this area.