SMEs face stark choices as credit crisis rumbles on
Should I be more interested in Income Tax avoidance schemes or looking after the longer term solvency of my business? Some SME owners are facing up to this issue before next April’s hike in the higher rate of income tax to 50% comes into play .
Tax partners at accountancy firms are reporting that many business owners are contemplating paying out bumper dividends to family members prior to the personal income tax rise in April next year as dividends are taxed at much lower rates. But are they only contemplating this action as a result of advice accountants are giving them?
Some tax experts are openly saying that this type of move by business owners is very legitimate and understandable tax planning……. but in the middle of a recession, are some accountants sending out the wrong message to small firms?
I read an alternative view in the Daily Telegraph in early November when Richard Mannion, national tax director of Smith & Williamson, stated that many companies recovering from the recession may well be advised to reduce dividend payments to protect their reserves. Reducing shareholders equity by paying larger than normal dividends out of retained profits will not do wonders for long term solvency- nor, might I add as a credit agency man, will it do much for company credit ratings, at a time when SMEs in particular are finding it difficult to obtain credit and finance.
I guess at the end of the day, all business owners have choices. After all, if you own and run a business, you can pay yourself what you like. You are also free to try and minimise your tax bill. My point is that accountants should at least advise business owners that there are consequences to any business decision, and that decisions should be taken on an informed basis. What i don’t want to hear next year is a bunch of small business owners who’ve paid out big dividends before April 2010 bleating on about their inability to get credit from credit granters. You pays your money.. and takes your choice!