The government has proposed changes in 2016 Budget to make corporation tax losses more flexible. When losses arising on or after 1 April 2017 are carried forward, they will be available to be used against profits from different types of income in the company and other group companies. However, where a company’s or group’s profits are above £5 million, there will be a restriction on the use of carry forward losses. Any profits over £5 million arising on or after 1 April 2017 cannot be reduced by more than 50% by brought forward losses.
The extraction of the profits
Directors/shareholders of companies may wish to consider extracting profits in the form of dividends, rather than as increased salaries or bonus payments. This is beneficial as it can lead to substantial savings in national insurance contributions. Please note that company profits extracted as a dividend remain chargeable to corporation tax at a minimum of 20%.
The timing of the dividend’s payment is not critical from the company’s point of view. But from the individual shareholder’s perspective, timing can be an important issue. The tax liability can be delayed by one year, if the shareholder is a higher/additional rate taxpayer, and a dividend payment is delayed until after the tax year ending on 5 April. There are a number of important factors to consider before the deferral of tax liabilities. So, please contact us at Adiva Accountants in Canary Wharf for detailed advice.
Loans to directors and shareholders
The company might have to pay a tax liability if it makes a loan to a shareholder. If the loan is still outstanding after nine months of the end of the accounting period, the company is required to make a payment equal to 25% (32.5% for loans made on or after 6 April 2016) of the loan to HMRC. The money is not repaid to the company until nine months after the end of the accounting period in which the loan is repaid by the shareholder. If the loan is provided at an interest rate lower than the market rate, this may also give rise to a tax liability for the director on the loan benefit.
At Adiva Accountants in Canary Wharf, we can provide tax advice for your company in Canary Wharf, Bromley, Kent and London areas. For further advice on proposed changes, dividends and loans, please do not hesitate to contact us at Adiva Accountants in Canary Wharf.