Dear Goldwyns, like many business owners I have run my limited company and remunerated myself with a small salary [sufficient to count as a contribution year to my State pension], and extracted the remainder of my income from the company as dividends. The new tax on dividends creates an appreciable increase in the overall tax liability. Any ideas?

Arthur Millman* answers:

First, it has to be said that in most instances, the payment of dividends is still more tax efficient than salary. However, there may be other ways to be paid on a proper commercial basis. It is not unknown for owners of companies to lend monies to that company, and it is not inappropriate for the company to pay interest to that lender. This has to be done by a particular return [form CT61], and the company deducts tax at basic rate from the interest it pays, as indeed the banks used to do. The important thing is the rate of interest must be commercial, and given that the lender is almost certainly lending to the company with no security, the rate of interest can be higher than would be paid to a bank who would insist on security or personal guarantees. As long as the rate of interest is realistic and commercial it should not “upset” HMRC.

You may also have premises that are made available to the business, for which you have been charging an historic rent, and never considered increasing this. Again, look at what is a market rent and charge that to the business, although if you have never charged rent in respect of the premises that you use for your business, please take advice before doing so.

The key to this whole matter is to have an accountant who takes the time to fully understand your business and can come up with a strategy which fits the circumstances

*Arthur Millman FCA is a Director of Goldwyns Accountants, based in Southend and operating across East Anglia.

This article was originally published in the Southend Echo on 18 April 2017.

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