So, basically, if you are a director you must register!
Many accountants think that this one size fits all approach is a little over the top and returns for salaried directors are unnecessary in some cases but the rules are absolutely clear, Directors must register!
So the latest case involving a property company came as a surprise to many accountants
Mohammed Salem Kadhem (case TC05929) became a director of a property company on 21 May 2014. He received no pay or dividends from that company and didn’t register for self-assessment.
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
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
We all like getting something for free, well now you can get free access to 170 million company records.
In line with the government’s commitment to free data, Companies House announced on 22nd June 2015 that all public digital data held on the UK register of companies is now accessible free of charge, on its new public beta search service.
This provides access to over 170 million digital records on companies and directors including financial accounts, company filings and details on directors and secretaries throughout the life of the company.
As a result, it will be easier for businesses and members of the public to research and scrutinise the activities and ownership of companies and connected individuals. Last year (2013/14), customers searching the Companies House website spent £8.7 million accessing company information on the register.
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.
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?
Good news, the exemption threshold for employment-related loans has been increased for 2014/15 from £5,000 to £10,000, as long as the balance is below this level there is no tax charge for employees or employers.
But there could be bad news for participators (Directors/Shareholders) who have been using one of these techniques to avoid the 25% temporary Corporation Tax charge:
1. Using a Partnership or LLP where the company is a partner or member as a way to get loans
2. Making arrangements that did not qualify as loans but the where value ended up in the hands on a participator
3. Making loans repaying them within 9 months and getting a new loan, the Bed and Breakfast approach
4. Transfers of assets
5. Loans channelled through third parties
New anti avoidance rules are coming, a consultation paper is planned for later this year aimed at minimising the scope for abuse and there will be new legislation in the Finance Bill 2014 and Finance Bill 2015.