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The Practitioner: Dividends change forces sole trader choice

The small company route is becoming increasingly unattractive, as dividend tax rule changes, plus VAT, sees the sole trader option being taken

IT’S BEEN A MANIC few weeks for us. Paternity leave, sickness leave and child care issues have left us short of staff for the past two weeks.

I’m never one to complain about paternity leave as I benefited from the generous two weeks allowance myself a few years back. However, adding on two weeks annual leave really has had an impact. Add to this the fact that one member of staff has been on sick for a week, and you can imagine how high my blood pressure has been rising recently.

We should be back to normal from next week onwards, but I’m hoping the new father doesn’t come back and fall asleep on his desk. I know what it’s like when you have your first child. Sleep is a rare thing!

Recent hot topics among clients I’ve spoken to recently are the new rules regarding buy-to-let investors, and the dividend allowance due to come into force next year. Clients who have already had their 2014/15 tax return prepared and filed are the ones keenest to know how the changes will affect them. Some of them are even happy for us to invoice them for a worked example. With all the recent staff shortages we have struggled to get these out, and in reality we will have to get to work on the long list of 2014/15 returns that need doing. Before we know it Christmas will be upon us and the mad rush will begin.

We have had a couple of smaller clients disincorporate recently. It’s been the client’s choice on both occasions but I believe that the new dividend rules have played their part in the decision. Being registered for VAT has also played a part.

I saw a client last week who, for the past three years, has made a conscious effort to build up his business by taking on staff, and he has grown his customer base and reputation.

He’s not yet 50 years old but recently he has decided to scale everything back, make all his staff redundant, and continue at a level of turnover below the vat threshold. If he didn’t do this he claims he would be priced out of the market by smaller firms who don’t charge VAT.

No VAT, and now no company. Maybe the intention of the new dividend rule is to flush out ‘smaller’ entities and make them go back to being a sole trader. I must admit I am tempted myself sometimes. Smaller business, fewer staff, less paternity and sickness pay…

The Practitioner’s uncensored thoughts come from within their own practice, having left a regional firm in the heart of England


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