Budget Blues for the business man....
Two weeks after the Budget, and a week after the publishing of the associated Finance Act, it is even more clear that there is little good news for family businesses trading within a limited company.
Yes, the corporation tax rate will reduce to 18% by 2020 but the benefit of this will be far outweighed by the new charges on dividends, and the “new” rules on goodwill.
The most tax efficient way of taking income out of a company has for several years been to take a nominal salary and then take dividends up to the higher rate tax threshold. This has meant that the only tax payable was corporation tax (and potentially VAT).
However, doing this from 6 April 2016 when the new rules come in means that there could be an additional income tax liability of around £2,000. The first payment will be due on 31 January 2018 and will actually be in the region of £3,000 as a “payment on account” of the next year’s liability will also be due; thereafter payments of around £1,000 will be due each January and July.
We will be talking to our clients about these changes as we finalise their next set of accounts, as there may be steps that can be taken to mitigate the extra tax charge.
As for goodwill, plus ça change, plus c’est le meme chose! For we are now back to how the corporate tax regime was before 2002, for transactions in goodwill after either 4 December 2014 or 8 July 2015:
- Goodwill is an asset to which the capital gains tax rules apply
- No tax relief is given for writing off goodwill within the accounts.
(Please note that this is an area where the tax treatment is different to the accounting treatment.)
There do remain advantages of transferring goodwill to a limited company, though, and, as ever, it is important that you talk to us at robinson+co before entering into any transactions involving goodwill so that we can help you to obtain the best tax result from the transaction.
Warning: as ever the comments above are general and the best way forward will depend on your specific circumstances. It is important that you talk to your usual robinson+co contact before taking any action.