Date added: : 22.04.2016

April 2016 can be referred to as a real news boom in the field of international law. The first stunning news was about famous "Panama Offshore", where many public figures were involved. The second news came to us from the UK, where authorized representatives announced at the STEP conference in London that the UK tax legislation underwent significant changes on April 6, 2016.

These changes concern amendments in respect to business, as well as receipt of dividends.

Positive trends include new preferential tax regime for those who just want to run business, or are already actively engaged in entrepreneurial activities.

It was planned from the very beginning that the essence of these changes will be stimulation of business development by implementing tax benefits in the form of reducing tax burden on capital assets for enterprises that tend to grow. But, this tax instrument has become in demand, and gained popularity not only among legal entities, but also among individuals. There are certain conditions in order for these benefits to be extended to business of a willing person, thus, his/her firm needs to have certain assets for at least one year.

Of course, this innovation will mainly affect purchase and sale of securities and shares, but other assets of enterprises will not be shot out. Instead of 18% and 28%, preferential rate on capital increase from purchase and sale of natural person's assets will be 10% now.

If shareholders of enterprises, who received their share of profits from distribution of assets after liquidation, previously fell under preferential treatment, now this will not happen.

Amendments make a clear allocation to those who fall under preferential treatment and who do not. Preferential treatment will now be applicable to an enterprise only when a shareholder: "participated in conducting of commercial activities for a long period of time or in a business similar to activities carried out by a liquidated company within two years prior to the time of asset allocation".

The foregoing also has another side. Experts predict that legitimation of these amendments would lead to the fact that many businessmen have had to start the process of liquidating their enterprises before changes took effect. But the situation has not acquired such massive scale in practice as many expected.

Concerning preferential tax treatment in respect of dividends, it is necessary to note the following. Tax exemption will now replace a tax credit, and will cover all dividends of up to £5,000 per year for all tax payers. As for previous system, practical application showed its absolute obsolescence and irrelevance, as it was introduced 40 years ago, at the time when cooperative tax was more than 50% of profit, and 80% of total income was tax accounts. After that, various mechanisms to reduce tax rates were already established at the legislative level, and dividend discount that was introduced in the middle of the 20th century remained a kind of throwback of the system.

Since April 2016, dividend income of up to 5,000 pounds is exempt from taxation. As for profit, if it exceeds above amount, it will be subject to standard rate of 6.5%. It is worth noting that the rate will be 31.5% for profit that exceeds this threshold and additional rate will be equal to 37%. Also, those who have a profit of more than 5,000 pounds must submit a declaration on income according to the system of self-assessment.

Representatives of small businesses will most likely face and perceive these tax reforms, and it will lead only to expansion and increase in a number of persons in this sphere.

With regard to any questions of tax planning and optimization, Law&Trust International is ready to provide highly qualified support.