Small firms should not view bonuses as a dirty word - there is
no comparison with banking scandals, an expert has warned.
And Sarah Moss, tax director at the Midlands office of PKF
Accountants and business advisers, is urging them to pull payments
forward to avoid a heavier tax hit next year.
But, she readily admits, it all depends whether SMEs battling
the recession can afford it.
Some would want to keep as much cash as possible in the business
during such difficult economic times.
Ms Moss said: "There is no doubt that the average man and woman
in the street have been shocked at some of the huge bonus and
remuneration announcements that have been pouring out of the banks
and oil companies.
"Indeed many now view bonuses as the preserve of the greedy.
"But the public need to look at bonuses and dividends completely
differently when it comes to owner managed businesses.
"Typically these are very hard working people who build
businesses and benefit the economy not only by employing others,
but also in many other ways. It has simply been more tax effective
for many entrepreneurs at all levels to take the profits out of
their company in this way."
Indeed, she noted, recent tax changes meant it was now sensible
for successful entrepreneurs with incomes of £150,000 a year
or more to pull bonuses and dividends forward from 2010/11 to the
current tax year. Otherwise they may have to pay an additional ten
per cent to the Government.
The downside is paying tax sooner than necessary - something
Whitehall might appreciate given the state of the public finances -
but the upside is avoiding the higher tax rates to come.
But care will be needed regarding payments to shareholders. For
example, the wrong move might put the spouse into a higher tax
bracket.
And Ms Moss added: "In this climate who wants to be stripping
cash out of a business?
"You could take the bonus and then lend the money back to the
company, but will you get access to it in the future? It might take
you years. There are a lot of 'what ifs'."
Similarly Ms Moss has concerns over contributions to
pensions. She cautioned against those rushing to boost their
pensions pot for fear they too could take a tax battering.
Urging them to hold off until the relevant legislation obtains
Royal Assent, she cautioned that the taxman would pick up on and
tax large one-off lump sums paid now and only allow those where
regular pension payments had been made.
"It is complicated," she said. "People need to take advice on
all their options."