Dividend payments beat tax rises

Published:  09 November, 2009

LONDON: Family-owned merchants are among profitable private companies planning to pay bumper dividends to shareholders to avoid higher taxes rates.

The move would let family members limit their tax liability to the current rate for dividends of 32.5%, rather than the new rate of 42.5% from April 5.

Clive Fathers, tax partner at Grant Thornton, said: "I have clients with retained earnings in their companies. I will certainly be talking to them if there's money they don't need in the company that they were going to distribute after April and telling them to do that in March instead."

Fathers said most companies would not act until the new year. "A lot of people are waiting with baited breath for the pre-Budget report details and how they will influence their reward strategies over the next few years.

"We are certainly aware that the government is now pursuing much more aggressively some of the more aggressive tax schemes in the market place."

Richard Mannion, national tax director at Smith & Williamson, said companies could bring forward bonus payments due to staff after April to help them avoid paying more tax but should think twice about also trying to tie those staff into the company until they had hit their targets in the new tax year.

"Paying a bonus outright, no strings attached, should be OK. But I would counsel people to be careful if it was paid with lots of strings attached," he said.

He added that many companies recovering from the recession will reduce dividend payments this year to protect their reserves.

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