Do you pay dividends to family members from your firm's profits? The tax office could soon change this practice.

Factfile

  • New guidance from the Inland Revenue will affect dividends
  • Small firms paying dividends to family members at lower tax rates will be affected
  • Companies with lots of employees and assets are unlikely to be hit
  • Paying a commercial salary will help
  • Dividends should be no more than a fair return on the shares
  • Watch out for dividends paid to children
  • ‘Alphabet’ style shares may be a solution

Source

Electrical and Mechanical Contractor

Postscript

Mark Lee is director of tax services at consultancy WJB Chiltern and chair of the Tax Faculty of the Institute of Chartered Accountants in England and Wales.