Entrepreneurs can be forgiven for finding tax guidelines confusing – particularly when they change. There is a lot to consider, from pensions to taxes on dividends and much more besides. Understanding the best way to plan and grow a business is not easy. So here, four entrepreneurs ask UK tax experts about the issues that concern them.
Organisation and documents
Sean Mallon, CEO of Leeds-based business for sale marketplace Bizdaq, asks:
“My business has grown from a one-man startup to a company with over 80 staff. However, I still have to regularly hunt around for documents and paperwork from years ago. So, if I was about to start my first business again, what records should I have kept and do you have any tips for managing this now without distracting me from growing my business?”
George Daubney, tax manager at Cowgill Holloway, replies:
“Most business owners would love a magic wand to be able to start again and do things properly, so you’re certainly not alone. From a practical point of view, the technology we all have at our fingertips is invaluable to a busy startup business owner. Get a cloud storage solution like Dropbox or Google Drive and a scanner with a good document feeder. It’s a good rule of thumb that if you’ve had to sign it, you need to save it – so follow that religiously.
“Documents that need to be kept in a safe and accessible place include your share register, notification of VAT registration, notification of PAYE registration, all HMRC correspondence, and all contracts of employment.
“When it comes to your financial records, get an accountant or bookkeeper who can maintain accurate ledgers for you and who will ideally store them on a cloud accounting platform. The advantage to being in the cloud is that the documents can be retrieved any time, any place, providing you have an internet connection. They can be downloaded in advance of any important meetings and allow you to focus on building the business.”
Dividends
Richard Merrin, managing director of London-based PR agency Spreckley Partners, asks:
“The changes to dividend income tax levels has many small business owners wondering what to do for the best. Some financial advisors suggest that entrepreneurs take the largest possible dividend in advance of the change. What is the best route forward?”
Marian Tompkins, director at WKM Accountancy, replies:
“We would certainly recommend drawing as much dividend as possible for the year 2015/16. In the case of a normal taxpayer working through a limited company and receiving a salary of £10,600, the maximum dividend they could drawn out without paying extra tax would be £28,607 for 2015/16. But, if you assume the same scenario for the year 2016-2017, the dividend draw could incur a tax charge of 7.5 percent on anything above £5,000.”
Rewards for staff and contractors
Steffan Aquarone, co-founder of Birmingham-based digital payments company Droplet, asks:
“We have an HMRC-approved employee share option scheme which is great for our staff. What should we do for people who aren’t full time, but are helping us out in exchange for a share in our future success. Is there a way we can give them share options that aren’t taxed until they’re worth something?”
Emily Coltman, chief accountant at FreeAgent, replies:
“Depending on what type of share scheme you have, you may be able to open it to all your employees, full-time and part-time alike. A Company Share Option Plan (CSOP) can be used to reward any employee, but an Enterprise Management Incentive (EMI) scheme, is only for employees working for you at least 25 hours a week. If less, 75% of their working time must be for you.
“Employee share schemes are rarely open to non-employed team members, such as self-employed consultants or contractors working through their own limited company. If any of these individuals would like to invest in your company, you could investigate the Enterprise Investment Scheme (EIS) to see if it might work for you.”
Pensions
Sue Wheeler, finance director at Cambridge-based marketing agency Genie Ventures, asks:
“Genie Ventures provides a salary sacrifice pension scheme that includes an employer contribution for its staff. Are there any particular issues to be aware of with this type of scheme and the government’s auto-enrolment requirement? What should we consider with regards to our trading status for a group that is planning on holding investments? We are particularly interested in restrictions affecting relief such as the Enterprise Investment Scheme (EIS) and the Enterprise Management Incentives (EMI), and any potential difficulties that you foresee in relation to future group restructures.”
Toby Ryland, corporate tax partner at HW Fisher & Company, replies:
“If you already offer a workplace pension to your staff, you need to check with your pension provider that the scheme is auto-enrolment compliant. You’ll also need to confirm this with the Pensions Regulator by making a declaration of compliance. This is a straightforward task that can be done online. If your pension scheme was previously optional, anyone who didn’t join must now be automatically enrolled before your staging date – the deadline will have been sent to you by the Pensions Regulator.
“Holding investments may change your company’s trading status, and this could adversely affect the relief to which you are entitled. If more than 20% of the company’s assets, turnover or management time relates to non-trading activities, it may cease to qualify for EIS, EMI and Entrepreneurs’ Relief.
“There could also be an impact if the nature of your business is deemed to have changed. For instance, property development is regarded as a trade for tax purposes, but is excluded from EIS and EMI. Group restructuring can also be problematic, especially for EIS and EMI. To qualify for both, the shares or options need to be in the parent company, and cannot be in a subsidiary. If your restructuring results in the creation of a new holding company, it can lead to the withdrawal of EIS, and EMI options can cease to be qualifying options.”
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