Don´t Get Caught out in 2018
It used to be said that we were a nation of shop-keepers. Now-a-days it might be more appropriate to think of ourselves as a nation of personal service companies.
The recent changes to the taxation of dividends in 2016/17 in the 2015 Budget will mean many small company directors will end up paying significantly more in personal tax come January 2018. Although incorporating to reduce your overall tax bill will now be less attractive, it is likely incorporation will still be the only choice for many people who offer their personal services to avoid employment status issues for their clients.
The problem for a small minority of directors, however, is that they won´t leave behind certain (bad) habits such as using their business bank account as an extension of their own personal current account. Reconciling the amount of money, a director actually takes out of the company, with the amount they should have drawn in respect of the payroll and dividend can sometimes be a problem.
If you are one such person, then please take heed of this warning. If you don´t take advice from your accountant in the early part of 2016 and stick religiously to the monthly salary and periodical dividend payments agree then come 2018 you are going to regret it when you get hit with penalties and the extra tax assessments both your company and you personally will face.
The introduction of Real Time Information Reporting for Payrolls (RTI-Payroll) removes the questionable option for companies to retrospectively declare a salary earlier in the year to account for any unauthorised withdrawals.
The option for a small business to collect up all their invoices and bank statements in a box and then hand them over to their accountant at the year end to sort out is no longer a sensible option especially with soon to be introduced Making Tax Digital (MTD) requirements.
If you are in business, you either have to know and comply with all the tax regulations as you go along, or work with a firm like Tax Data Ltd who can do it for you. To try to continue operating in blissful ignorance will just bring you quickly to the attention of the HMRC and end up costing you far more than the accounting fee you would have paid to keep you on the straight and narrow in the first place.
Published 13 September 2017.
Updated 8 February 2018