The Director who made his company insolvent by taking a Bonus! Reply

Kenneth Moyes has been disqualified for five years from acting as a director after he withdrew cash from his football company to avoid tax payments.

https://www.gov.uk/government/news/pre-season-tours-no-longer-friendly-for-banned-director

Moyes’ disqualification follows an investigation by the Insolvency Service into Glasgow-based Professional Pre Season Tours Limited, which ceased trading in April 2014.

The company had been involved in arranging pre-season tours for various football clubs, including Everton, Chelsea, Liverpool, Leeds United, Sheffield Wednesday, Nottingham Forest, Norwich City, Aberdeen, Hibernian and Celtic.

The investigation found that Moyes transferred over £300,000 from the company to himself as a ‘bonus payment’ shortly before the company stopped trading. However according to the company accounts, no money was actually transferred, although it allowed him to claim a loan account debt was settled. In reality, this money had already been withdrawn for his personal use.

Investigators established that he withdrew at least £420,400 in cash from the company while it was trading, but failed to declare the full amount.

Because the fictitious transfer resulted in a nominal asset of the company being turned into a liability, it was unable to pay its obligations to HM Revenue and Customs (HMRC) in terms of PAYE and National Insurance contributions. At liquidation it owed £271,180 to creditors, of which all but £4,067 of which was to HMRC.

We all need to pay tax, those who seek to find ways round the system need to know that HMRC will find them and make them pay!

steve@bicknells.net

How can you limit a Directors/Personal Guarantee? Reply

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If you have a Business and you want too borrow money, you will probably be asked to give a Personal or Directors Guarantee.

Most Directors don’t want to give guarantees as it makes them liable rather than their business and the purpose of having a limited company was to limit their personal liability.

So it’s a common dilemma.

What can you do to reduce your risk?

  1. Would you be prepared to pay a higher rate of interest? there are are lenders who for an increased rate will agree not to ask for PG’s or DG’s
  2. If you aren’t prepared to give a guarantee you should make this clear upfront with the potential lender, it will save time and money.
  3. Limit the terms of the Guarantee – don’t let the guarantee be unlimited or unconditional
  4. Agree terms for relief – for example when a % of the debt has been repaid
  5. Decrease the Guarantee if the business achieves specific goals, for example a target net worth
  6. Set rules for when the Guarantee can be called on for example when a set number of repayments are missed
  7. Avoid ‘Joint ans Several’ Guarantees as not all business owners may have equal shares
  8. Avoid co-signing by Spouses
  9. Avoid using your main residence in the guarantee
  10. Consider whether Personal Guarantee Insurance could be obtained and used

http://www.begbies-traynorgroup.com/articles/director-advice/what-is-personal-guarantee-insurance

What are the benefits of Personal Guarantee Insurance in more detail?

  • It allows directors to balance their risk evenly, so that no one director is taking on all the uncertainty of guarantees being called upon in the future

  • It can provide the incentive needed to grow the company by borrowing essential monies

  • This type of insurance is flexible, and can be increased if necessary as your business grows

  • Personal Guarantee Insurance provides peace of mind to directors that the full value of their personal asset is not at risk

  • Start-up companies have access to funding that they might not otherwise be comfortable taking on

steve@bicknells.net

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What are tax implications if a company pays a Directors personal expenses? Reply

Businessman struggling with large Expenses

It’s not uncommon for Directors personal expenses to get mixed up with business expenses, for example the director is out buying things for the company and picks up some items for themselves at the same time and it goes on the same bill.

In a perfect world the Director would just repay the cost of personal purchases to the company, but we don’t live in  perfect world, so what are the options?

Directors Loan Account

You could post the cost to the Directors Loan Account. These accounts are normally repaid when the Director is paid either salary or dividends.

If the loan is not cleared by year end then the company will have to pay a temporary corporation tax charge of 25% and reclaim the tax when the loan is repaid using form L2P

There may also be a notional amount of interest (4%) charged as a benefit in kind on the loan.

Benefit In Kind

You could have the expenses as a benefit in kind, some benefits may even be tax free, here is a list of my favourite tax free benefits

  1. Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – new rules coming soon
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog

Private Use of Company Assets

It may also be worth considering private use of company assets.

  • The cost of the asset is allowed against Corporation Tax and you can claim Capital Allowances and the Annual Investment Allowance.
  • The Assets could be purchased from the Director but they must be transferred at Market Value.
  • The Benefit In Kind is generally 20% of the market value

steve@bicknells.net

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Goodbye to Corporate Directors…. Reply

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Corporate Directors have been particularly useful to Groups, its easier and more flexible to show the parent company as the director than to name a specific person, but as a result of the Small Business, Enterprise and Employment Act 2015, companies will no longer be allowed to have corporate directors.

The ban will come into effect in October 2015 and companies that have Corporate Directors have until October 2016 to remove their corporate directors.

However, the government may have a change of heart following its consultation on whether Corporate Directors could be allowed if the Corporate Director Company has a board of fully disclosed individual directors.

steve@bicknells.net

Who will takeover if the controlling shareholder dies? Reply

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What happens in the event of serious illness or death of a controlling shareholder?

Every business should have a plan in place. Normally illness and capacity will not change the voting rights but death will.

Usually the companies articles of association will contain rules which authorise the executors of a deceased shareholder to register as the share owners until they transfer them to the beneficiaries. This is often not the best solution.

A better way is to prepare a shareholders agreement which sets out what will happen.

Its worth considering:

  1. pre-emption rights – these arrange automatic transfer to named shareholders
  2. purchase rights – these will allow the company to buy back the shares from the beneficiaries

If you haven’t got a plan, make one before its too late

steve@bicknells.net

 

How does s455 tax apply to Directors Loans? what if you ‘bed and breakfast’ the loan? Reply

Scaring amounts

Directors (participators in a closed company) often borrow money from their companies with the intention of paying a dividend to repay the loan.

If the loan is outstanding more than 9 months after the company year end, then an extra 25% corporation tax charge is due, this is the s455 tax which is refunded when the loan is repaid as explained in this blog

https://stevejbicknell.com/2015/02/04/new-tax-procedure-for-directors-loans-s-455/

HMRC were concerned that some participators were avoiding this tax by raising funds short term to repay an outstanding loan.  They would then draw a new loan very shortly afterwards – HMRC refer to this as “bed and breakfasting”. New anti-avoidance rules were therefore  introduced in 2013.

These new rules incorporate two provisions – the “30-day rule” and the “intentions and arrangements” rule.

30-day rule

This applies where within a 30-day period:

  • a shareholder makes repayments of their s455 loan; and
  • in a subsequent accounting period, new loans or advances are made to the same shareholder or their associate.

So basically prevents the use of ‘Bed & Breakfasting’

‘intentions and arrangements’ Rule

Relief is denied regardless of the 30 day rule, if prior to repayment there is an outstanding amount of at least £15,000 and at the time the amount is repaid to the company, any person intended to redraw any of that amount or had made arrangements to make a new withdrawal; and a new withdrawal is made.
The relief denied is the lower of the amount repaid and the amount redrawn.

 

steve@bicknells.net

What is the optimum tax efficient salary 2015-16? 1

Entrepreneur startup business model

Many small business owners ask this question, typically they are a sole director and share holder and want to decide from a tax and NI perspective what the optimum salary is (the rest of their income coming from dividends).

The new lower earning threshold for National Insurance is £5,824 per year (£112 per week) for 2015-16, there is an advantage to paying above this level so that you will earn credits towards a state pension. Its expected in current terms that a years credit is worth £225 pension per year for life. Employees start paying NI when earnings are above £155 per week)

The Employment Allowance of £2,000 has been continued into 2015-16 which means you won’t have to pay any employer National Insurance contributions at all if you usually pay less than £2,000 a year.

The personal tax free allowance for 2015-16 is £10,600.

So assuming you aren’t a higher rate tax payer and you haven’t used up the employment allowance on other staff, £10,600 would be the optimum salary because:

Saved Corporation Tax at 20% = £2,120

Employee NI 12% on (£10,600 – £155 x52) = (£304.80)

Saving £1,815.20

Beyond this point income tax is payable at 20%

steve@bicknells.net

What are Directors Emoluments? Reply

Businessman With Gold Bar

The reporting requirements are set out in The Large and Medium Sized Companies and Groups (Accounts and Reports) Regulations 2008, obviously emoluments include:

  1. Salary
  2. Bonuses
  3. Compensation for Loss of Office
  4. Benefits
  5. Share Options
  6. Long Term incentives
  7. Pensions

But it can also include payments made via other companies for ‘Qualifying Services’, these are payments paid in relation to the Directors services as a Director of the reporting company (Section 8, Part4, Paragraph 17).

In many cases this could be obvious for example if the Director used a Personal Service Company (PSC) or if the director invoices the company for management services or for management charges. But often invoices relate to the supply of products and services which don’t fall within qualifying services.

Its worth noting that unquoted companies with less than £200k for Directors Emoluments are not required to report details of the highest paid director.

Its also worth remembering that any related party transactions should be fully disclosed in the related party note, so is further clarification of what should be emoluments needed?

steve@bicknells.net