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27 Jun 2011
THE TAXMAN IS turning down Time to Pay (TTP) applications from companies that use dividends as a form of remuneration, Accountancy Age has learnt.
The TTP arrangements allow companies to defer the money they owe HM Revenue & Customs to aid their cash flow situations. The Revenue still agrees to around 95% of applications, turning down first-time applicants only rarely.
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However, Richard Godmon, a partner at Menzies, said that the firm had been told in a "working together" meeting that HMRC will refuse applicants that use dividends as part of their remuneration packages. This is a new policy, Godmon said, as "in the past few years, the Revenue has been positive and didn't ask many questions".
An HMRC spokesman said: "Where a company asks us for a TTP arrangement and we have information or see that they recently paid out a dividend while they were running up a tax debt, we would refuse a TTP on the grounds that they have preferred to use the money elsewhere and the shareholders should support their company. It is a routine question our staff ask to establish that we are not be used to fund other creditors.
"In essence, if a company has spare cash to make non-contractual payments to shareholders then it can pay at least part of its tax debts."
But Godmon said that companies "pay dividends as part of sensible remuneration planning. If you compare paying out a bonus to a dividend, it is much more tax efficient to pay out dividends."
Godmon added: "Why should companies that have been well advised miss out on Time to Pay?" He said that two businesses that are in exactly the same trading levels and the same levels of "cash extraction" – paying out the same value of remuneration to their employees – would be treated differently as part of TTP. "It has nothing to do with their positions," he added.
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Visitor comments Add your comment
Disagree
Put simply, it is about time members who are directors, seeking tax efficient remuneration, should bear some of the costs the rest of society have no option in avoiding. The taxman is our taxman for goodness sake. Need to draw a line between these and those members that do actually fund entities who should be rewarded accordingly.
Posted by: Ben Woodthorpe, 27 Jun 2011 | 21:38
different world
Just confirms that HMRC have not got a clue about business and seem to live in a different world. I wonder who is going to pay for their holidays (strike) when they have killed the goose.
Posted by: Spike, 28 Jun 2011 | 11:03
RE: Spike
I take it Spike is one of these selfish so-and-sos that thinks society should pick up the tax bill for ailing companies, which are crippled because greedy directors have rinsed the company dry?
Either you don't know what you're talking about or you need to grow up.
Posted by: Jo, 28 Jun 2011 | 11:48
Rational
Surely paying out a dividend is a good sign for a company - aiding it's ability to attract investment and help cash flow in the future?
Surely deferred tax payment is better than a company collapse... maybe there should be limits in place?
Posted by: Buzziness, 28 Jun 2011 | 13:30
RE Rationale
To say that a company needs time to pay the tax, but can afford a dividend is not a sign of a healthy company. I can understand that the taxman does not want to subsidise the avoidance of tax.
Posted by: Colin, 30 Jun 2011 | 09:32
HMRC don't understand
Nor perhaps do some of the people commenting. Typically the salary will be less than minumum wage, topped up by dividends. HMRC have been refusing TTP on this basis for a while now, because they simply don't understand what question to ask. If they said "How much income have the directors taken out" and compared that to (say) average earnings, that may be reasonable as a determining factor in whether or not to allow TTP. A company could pay a salary of £100K to a director but no dividends, and that's OK, but a salary of £600/month plus £500 dividends isn't acceptable in their eyes.
Posted by: Mike, 30 Jun 2011 | 11:54
time to pay who?
If the Company needs a TTP it is at risk of insolvency and the interests of creditors should come before the shareholders. One key problem of adopting dividends as the tax efficient basis for remunerating director/shareholders is that this becomes more dangerous legally if the company is insolvent. To pay a dividend assumes that the company has distributable profits and can afford to part with profits to its shareholders rather than retain them as working capital. Payments to shareholders rank at a lower legal priority to creditors in insolvency and adopting a stance that shareholders should be paid dividends before creditors are paid is just asking for trouble should the company enter insolvency proceedings (eg if the TTP is refused) because the dividend (especially one that repays a directors' loan!) may be attacked by a liquidator whereas a genuine and reasonable salary - perhaps of the same amount - may not. Too often a business will assume that good advice given when a company is solvent remains good advice when it is, or is nearly, insolvent.
Posted by: Insolvency lawyer, 03 Jul 2011 | 21:20
HMRC TTP
We are finding this is true that TTP's are being refused more frequently. It is also important that businesses that request one must keep uptodate with their company records as well
Posted by: Robert Moore KSA Group, 04 Jul 2011 | 12:03