As mentioned last week, major changes to the taxation of dividends apply from 6 April 2016.
In advance of the changes the Government are looking at bolstering various tax avoidance provisions designed to prevent income being paid out to shareholders in capital form, such that entrepreneurs relief at 10% will apply. This is expected to become more prevalent when the income tax rate on income dividends increases.
The consultation document issued in December highlights several areas of concern.
The most significant are firstly, the disposal of shares to a third party where profits have been retained in the company and surplus cash accumulated.
Secondly, distributions made when a company is wound up, and in particular where the company has been used as a money box or in cases of phoenixism where the same trade is carried on by a new company within a short timescale.
The consultation closes later this week and at this stage it is difficult to predict the what the outcome will be. We hope that genuine commercial transactions will be protected. The changes made will take effect from 6 April 2016, watch this space for further details.
In the meantime, contact Lesley Sutton on 01484 550037 or email firstname.lastname@example.org.