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Blog

Remuneration strategy following recent policy announcements

Adrian Mooy - Saturday, February 15, 2020
 
The government announced in November 2019 that the scheduled reduction in corporation tax (CT) from 19% to just 17% from 2020/21 was not going to happen. It could have been worse for companies, given that many political parties wanted to reverse the recent trend of falling CT rates.

 

Many small companies are set up to cover single projects - typically in construction or IT - and the shareholder/directors may want to minimise their exposure to high marginal rates of income tax/ NICs on salaries and/or dividends. Such companies might then be wound up on the successful completion of the project and the shareholder/ directors might well then stand to benefit from ER on any accumulated profits that have not so far been paid out as salary or dividends. In the right circumstances, ER can offer significant savings, although there are numerous criteria and now special anti-avoidance rules, aimed at preventing ‘phoenixing’ companies and re- starting in the same sector. However, a genuine commercial basis for winding up the company should prevent the anti-avoidance legislation from being triggered.

 

Suggestions:

 

1. There is little point in trying to defer corporate profits to later than 1 April 2020 to get them taxed at lower rates.

 

2. Shareholder/directors will probably want in coming tax years to increase their gross salaries to just below the rising threshold at which NICs become payable, to optimise their overall efficiencies.

 

3. The increase in employers allowance will make taking on a spouse, civil partner or close family member for a higher salary more efficient, where they might otherwise waste tax-free personal allowance and lower tax bands.

 

4. Where profits have accumulated in the business and the directors/shareholders hope to benefit from ER, there may well be some cases where triggering a disposal in the current 2019/20 tax year could usefully 'bank' ER before it is potentially restricted or even abolished.

 

Proper tax advice and planning is essential.

 

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