How do you play?
The extraction of funds from a company by owner/managers can be viewed as a game. A game that has rules. A game you can play well if you know and understand the rules. A game you can be ahead of, if you have a strategy that is built round the rules, and a game that you will win if you play by the rules and do things properly.
This game has always existed but now the rules are getting much stricter. As we visit new prospective clients, it is evident that many of them do not even know that that such a game exists. They operate in blissful ignorance and in the blind faith that their accountant will wave a magic wand and make everything right at the year end, because after all that is what accountants are for isn’t it? Why should they bother to understand the rules and do things properly when they can pay an accountant to do that for them?
Not knowing how to play
Such blind faith can lead company owner/directors, to play the game badly and leave them open to the likelihood of losing it altogether. By simply taking funds from their company in any way that they want, such as cash from the ATM, bank transfers to their personal account, payment of private invoices, regular standing orders to non-business sources, including to themselves, they are breaking all the rules. They think this is acceptable because their accountant has never told them what the rules are, or they have been lulled into believing that everything can just be made right at the end of the year. Many accountants do this by retrospectively pretending that the rules were being followed, by making up a fallacy that a business declared dividends that in reality they never did, or by creating the pretence that salaries were paid, which simply were not.
Catch 22
At best such a strategy is nothing more than reactive. They are making the best of a bad job and employing damage limitation techniques to do their best to protect you, even though the horse has long since bolted. The opportunity to discuss with you what the rules are, and how they can be used to your advantage to make you a winner is lost. As a consequence you get a second best, or even worse, solution.
Worse still, if you have played the game badly, and not followed the rules you can find that you have large unexpected personal tax liabilities, in addition to the Corporation Tax paid through your company. You could find yourself with a Catch 22 situation – the high “pretend” dividends that your accountant invents to cover your rampant withdrawals, results in high personal tax bills, which are paid on behalf of the directors through the company. This causes the need for more inventiveness at the next year-end and more so-called dividends resulting in yet more tax to be paid. As a result of playing the game so badly you could be endlessly paying tax both in the company and personally without a solution in sight.
Play a pro-active game
You cannot afford to play the game reactively. You need to be ahead of the game. Use the rules to your advantage, not suffer from them due to not knowing what they are. At DEB we ensure you know what these rules are and what the best way that you can use them is. We create solutions to get you out of the endless cycle of paying tax. We discuss and design a game winning strategy for you so that can play the game with confidence as all winners should. We are pro-active in helping you to play the game right and to your advantage.
A changing game
With HMRC desperate to take more cash from you, they have become, and are becoming, extremely good players of the game. They constantly change the rules to their advantage and interpret existing ones in new ways. In a game where the rules of engagement are changing so much, taking the view that you can do exactly what you have done in the past, and your accountant will sort it all out is naïve in the extreme.
HMRC are tightening the rules:
- So that it is difficult to pretend that a wage was processed if the correct procedure was not followed.
- So that they can challenge the legality of dividends that have not been processed correctly and cannot be supported by the correct documentation generated at the right time.
- Affecting the repayment of director’s loans and new proposals could see charges relating to overdrawn director’s loan accounts become increasingly punitive in the future.
- So that regular payments of cash not being processed as wages, and not supported by dividend documentation, are treated as being salary on which there is a liability to tax, employer’s National Insurance, and Employees National Insurance. Not to mention the ever- increasing impact of penalties and interest.
Playing the game right
Only by playing the game right can you hope to fend off HMRC and avoid unnecessary tax liabilities. Knowing how to play and having someone to discuss your playing strategy with regularly is the best way to ensure that you win rather than lose. Times are changing and you need to change with them. You must not get left taking part in a game that you do not know how to play, simply because your accountant has not provided you with enough knowledge, guidance, tactics and strategy, to give you a better chance of winning.
Learn to play with DEB
At DEB we have always ensured that our clients are effective players of the game. We explain the rules to them. We discuss with them how the rules can work for them instead of against them. We discuss and agree a strategy with them, and show them how to get the best advantage from the rules. We review this strategy with them throughout the year so that it can be amended if necessary. We provide help and assistance to ensure that they abide by the rules and do not fall foul of them. We also keep our clients ahead of the game by supplying regular information and updates on all rule changes and strategies being employed by HMRC that we distribute using DEB Connect, our unique client information system.
Need a better coach?
If you are not being given the help and coaching that you need to make you a winner then DEB Chartered Accountants can help. Contact us for a no obligation, free meeting to discuss your present situation. We have recently been shortlisted for the British Accounting Awards, and the Barnsley & Rotherham Chamber of Commerce Awards in recognition of the innovative things we are doing to help our clients. It is these things that we can use to make a difference to you and your business. We would love the opportunity to discuss our ideas with you. If you would like a free meeting to discuss your situation with us please contact us on 01226 245824 or email lisa@deb-accountants.co.uk
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