Company directors with significant cash balances in their companies need to take action before the Chancellor stands up to deliver his Budget on Wednesday 3 March, tax experts at national audit, tax, advisory and risk firm Crowe are warning.
Sue Daye, Tax Partner in Crowe’s Cheltenham office, said Rishi Sunak’s 2021 budget was highly unlikely to be a giveaway budget, given the £350 billion cost of the coronavirus pandemic on the public purse.
“The Chancellor has to tread a fine line between encouraging industry to get back on track, business owners to invest for recovery and growth, and beginning the long haul to cover the huge national debt incurred by the costs of COVID-19.
“He will be seeking a number of ways of raising money without increasing mainstream taxes on employees too much. He has previously indicated he is minded to address the difference between the tax paid by employees and that paid on dividends by business directors.”
She said it was likely he would go further and seek to create a level playing field, possibly in one step in this budget.
Currently directors have an annual tax-free dividend allowance of £2,000, with any surplus income taxed at 7.5%, 32.5% and 38.1% depending on whether they are a basic, higher or additional rate tax payer, which is a more generous tax rate than that enjoyed by employees taxed on a PAYE basis.
Mrs Daye said: “Capital Gains Tax is another tax that could be on his radar.“If you are currently sitting on significant capital reserves up to £100,000 then you need to take action before the budget, but we strongly advise you seek professional advice in order to maximise your savings and protect your cash.
“How and when you pay dividends to you and other family shareholders is of paramount importance and you have limited time to take action,” she stressed.