Cash Extraction – Steve Maggs warns SME’s to watch out

Steve Maggs, Tax Manager at Robinson Reed Layton, the Cornish firm of Chartered Accountants and Chartered Tax Advisers, is warning companies to watch out for the new SME cash extraction rules coming into force on 6 April 2016.  

The significant changes to the taxation of cash extraction from companies from 6 April 2016 could leave company shareholders with a large tax bill.  The rate of income tax on dividend income across all of the income tax bands will increase by 7.5% so companies need to consider paying out dividends before this increase.

Additional proposed new changes will also affect distributions received on the winding up or liquidation of a company.  Currently distributions are largely deemed to be capital distributions and thus within the capital gains tax regime of 10%. The proposed changes could result in distributions being subject to income tax thus increasing tax liabilities.

Steve Maggs, Tax Director, explained, “Although the new rules relating to liquidations are not yet set in concrete, with under two months to go until the new tax year it is prudent to seriously consider the impact of these new changes and whether you take urgent action before the end of the tax year.”

“There are many SME’s in Cornwall who may be stung by these proposed new rules seeing a larger tax bill if a liquidation takes place in future tax years.”

“I am recommending that companies considering liquidation, and particularly those with significant cash balances arising from accumulated profits, seriously consider a formal liquidation prior to 6 April 2016.”

“Although the clock is ticking there is still time to take decisive action to reduce your cash extraction tax bill.”

For more information, please visit the Steve Maggs Tax Blogg at http://www.rrlcornwall.co.uk/steve-maggs-tax-blog or contact Steve direct on 01872 276116.