International Accounting Standards
Dividends and Corporation Tax Rates
Not so topical, ongoing technical issues
The Companies Act 1985 was revised and rewritten, and published as The Companies Act 2006. It has been brought into force in sections, and the last parts are now in force (October 2009).
The new Companies Act 2006 has been drafted differently from earlier ones. The 1985 and earlier Acts presented us with a list of requirements that all companies had to comply with unless they were covered by one of the many exemptions listed later in the Act. The 2006 Act starts by listing requirements for small companies, and then adds extra requirements for larger companies. This is a much easier approach for people working with small companies.
Perhaps one of the most important changes for small companies is the reduction in the time given to file accounts at Companies House. This has reduced from 10 months to 9 (effective for year ends April 2009 onwards), and now lines up with the Corporation tax payment deadline.
The automatic fines levied for missing the accounts filing deadline have also been increased quite dramatically. For private companies up to one month late costs £150 after which it rises to £375. At three months it rises to £750 and after six months it costs £1,500.
Click here to download The Companies Act 2006 or click here for the DTI's explanatory notes.
The House of Lords pronounced on a very high profile case (Arctic Systems) on 25 July 2007 regarding the treatment of income in husband and wife companies. In a number of these businesses HM Revenue and Customs have sought to treat the wife's income as if it had been paid to her husband, thereby increasing the couple's overall tax liability.
In their unanimous judgement the Lords decided that the interpretation of the law being used by HM Revenue and Customs is incorrect. The Lords agreed with HM Revenue and Customs that by setting up a company with one share each the husband and wife were entering into a settlement arrangement, but they also said that the exemption for gifts between spouses applied, so dividends paid to the non working spouse were not income arising under a settlement.
The Treasury issued a written Ministerial Statement the day the judgement was issued stating that they intend to change the legislation as a result.
In his budget speech on 12 March 2008 Alastair Darling announced that the proposed changes to the law dealing with 'income shifting' would be delayed until 2009, and this has since been delayed further owing to the banking crisis.
Most commentators believe this is just a delay and that legislation will be enacted - it is just a matter of time.
UK Accounting Standards were traditionally set by the Accounting Standards Board, and before that by the Accounting Standards Committee. A European Union directive requires all listed companies (those quoted on a stock exchange) to prepare their accounts from 2005 onwards in accordance with International Accounting Standards, which are set by the International Accounting Standards Board.
The UK Accounting Standards Board has undertaken a review of all UK accounting standards to ensure that companies complying with UK standards will also be complying with International Accounting Standards.
As unlisted companies (those not quoted on a stock exchange) also have to comply with accounting standards they are therefore potentially affected. However, the vast majority of changes are related to large company issues, so small companies are unlikely to be affected.
The UK Accounting Standards Board has suggested that all small and medium sized companies should be allowed to use the single "International Financial Reporting Standard for Small and Medium-sized entities". If this approach is adopted world-wide it would standardise accounts across the world, and small and medium sized companies would have a standard written to cover issues that affect them. However this proposal cannot be implemented in the UK unless it is adopted by the EU, or the relevant EU directive is amended. Perhaps its time to lobby your MEP.
From 2009 tax returns have to be filed by 31 October unless you file electronically, in which case you have until the following 31 January.
It should be noted however that it is impossible to file electronically unless you have been given a 10 digit 'Unique Taxpayer Reference' (UTR) by HMRC, and HMRC can take several months to issue one.
There are two very different regimes for Corporation Tax. Companies with taxable profits of less than £300,000 are taxed at the small companies rate(s). Those with profits exceeding £1½ million are taxed at the full rate. Those with profits in between are taxed on a sliding scale.
In the 2007 budget the government announced a 2p reduction in Corporation Tax rates. This was misleading as the rate for small companies was increased from 19p to 22p. Despite the government's trumpeting of its support for SMEs (Small and Medium Sized Enterprises) the reality is rather different.
Pre April 2004 companies with taxable profits of less £10,000 paid no Corporation Tax. Those with taxable profits between £50,000 and £300,000 were taxed at 19%, and between £10,000 and £50,000 were taxed on a sliding scale.
From April 2004 the profits from which dividends were paid were taxed at a minimum of 19%, but this measure was scrapped in April 2006.
In April 2006 the lower rates of Corporation Tax were scrapped, leaving companies with taxable profits of less than £300,000 with a 19% tax rate. This was increased in April 2007 to 20% and in April 2008 to 21%. The March 2007 budget promised a further increase to 22% from April 2009, but this has been delayed owing to the economic crisis.
© Howard and Company
Chartered Certified Accountants Egham
Contact us by:
Telephone:
+44 (0)1784 439199
Fax:
+44 (0)1784 439190
Email:
info@howardonline.com
Howard and Company,
Post:
High Street,
Egham,
Surrey,
TW20 9HE
UK
or Click Here