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Client Advisory Letter - Dividends and PAYE/NI - Version 18 - April 2014

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Recent developments indicate that HM Revenue & Customs are taking steps to limit the effectiveness of the dividend strategy (IR35, use of the settlements legislation, changes relative to managed service companies, anti avoidance legislation in respect of alphabet share arrangements and their recent success in the Court of Appeal case of P.A. Holdings Limited etc etc).  Ministers have confirmed the Government's desire to charge PAYE and National Insurance contributions in respect of "the employment reward - the passing of value to an employee in return for the employee's labour".  Whether this applies to the payment of a small salary and a large dividend typical in the owner managed business situation is not known and to date there has been no evidence that the existing legislation is to be applied in these circumstances but some believe that this could change.  Our letter is designed to advise clients of the background position, recent events and draw to their attention possible future developments.  Some may take action to increase salaries as a result of the letter and no doubt others will not.  However, the letter should provide a valuable resource for every practice in advising clients of the relevant issues and helping to protect it from possible future complaints/claims if a more widespread attack on dividends does indeed occur.

Pages: 2

Author: DTE Tax

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