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.
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.
MTD represents 'the single most significant change to the UK’s system of taxation in recent times', says Knill James partner Nick Rawson. So, how prepared are SMEs for digital tax reporting?
The SME community voices concern about the chancellor's measures in the Spring Budget
Following chancellor Philip Hammond’s Spring Budget speech, we explore the key takeaways for businesses and individuals
Unincorporated businesses under the VAT threshold given an extra year to prepare before MTD becomes mandatory