Can I change my mind about a dividend?
Q. In 2019 my company paid me cash adding up to over £25,000. This was charged to my director’s loan account (DLA), and at the company’s year end (31 December 2019) I still owed the money. My accountant says because of this the company will have to pay tax of over £8,000 (£25,000 at 32.5%) but that it could have been avoided if I had taken the money as a dividend. This seems unfair; is my accountant correct?
A. If you did nothing about the debt before 1 October 2020 your accountant would be correct. However, the good news is that it’s not too late to avoid the tax charge. While the 32.5% tax charge is temporary as it would be refunded if you repay what you owe, it’s obviously better to avoid the charge if possible. The £25,000 charged to your DLA can’t be retrospectively re-categorised as the nature of the payment is determined at the time. However, paying a dividend within nine months of your company’s financial year end will achieve the same effect, i.e. it will prevent the tax charge. If you delay the dividend until after 5 April 2020 it will be taxable in 2020/21 rather than 2019/20. This means you won’t have to pay tax on it until 31 January 2022. It’s better that the dividend is credited to your DLA to clear the debt rather than it being paid to you for you to repay your company.
It’s not too late to avoid the tax charge. It can be done by your company paying a dividend at any time prior to 1 October 2020 – after 5 April could be advantageous. The dividend should be credited to your loan account to clear your debt.
Getting your company to pay for personal expenses
Q. Mr Brown has been asked by his son to pay £1,500 for a weekend residential course. He could of course pay using his personal funds but would it be more tax efficient if his company paid?
A. There is no tax gain or other financial advantage to be made from doing this. That’s not to say he can’t or shouldn’t get his company to pay. However, it’s usually more tax efficient to take extra dividends or salary to cover it.
How much salary? In order to meet a personal expense your company needs to pay you a significantly greater amount so that after tax and NI you’re left with enough.
How much dividend? A more tax and NI-efficient option for Mr Brown is to take a dividend from his company. As it’s a divided there’s no NI for Mr Brown or his company to pay but the bad news is it doesn’t receive a CT deduction. Overall, it’s slightly more tax efficient than taking extra salary.
Direct payment – Mr Brown could arrange for his company to pay for the course for his son. This will count as a benefit in kind, which means he won’t have to pay any NI, although his company still has to pay some, but only 13.8% of £1,500 (instead of 13.8% of £2,586). Another advantage is that the tax on the benefit is payable later compared with that paid on salary.
However, for the arrangement to work tax efficiently it’s not sufficient for Mr Brown’s son to present the bill for the course to the company and for it to pay it. It must buy the course direct from the provider.
Mr Brown could make the arrangement even more tax and NI efficient if he asked his son to pay back some or all of the cost of the course by doing some work for the company (even if he creates a special job just for this purpose). As long as the work is legitimately for the company’s benefit, HMRC can’t complain. This is easily the most tax and NI-efficient way for Mr Brown to pay for his son’s course.
Simply getting your company to pay a personal bill usually isn’t the most tax and NI-efficient option. It’s better to take an extra dividend and pay the cost personally. But in most situations the most tax and NI-efficient option is to get your son or daughter to work off the cost by doing some ad hoc work for your company.
Is sending e-mails to personal accounts a breach of GDPR?
Q. You’ve discovered that one of your employees routinely forwards work e-mails and related documents to their personal e-mail account so that they can catch up with work during evenings and weekends at home. Then they send the completed work back to their work e-mail account. Is this a potential breach of the GDPR?
A. Yes. If an employee forwards an e-mail from a work account to a personal one and it contains personal data, this will automatically be a breach of the GDPR.
If personal data is being sent outside of your IT systems, especially if it contains sensitive customer or client information, it is a breach of GDPR, it doesn’t make any difference that the external third party e-mail account belongs to somebody who works for you. Unfortunately, for you and your employee, ‘catching up with work’ is not an acceptable justification for the Information Commissioner’s Office which enforces all data protection legislation. Even if the e-mails don’t contain any personal data, it’s far safer to insist that your employee refrains from this activity immediately. It would also be sensible to advise all staff that work e-mails should never be forwarded to personal e-mail accounts, you can also make this a disciplinary offence. If an employee does need to check or work on e-mails outside of office hours, they should either be given or have a device which has the required encryption facilities.
Talking about medical conditions
Q. If one of your employees has a medical condition and it is verbally disclosed to another person in conversation, for example, their line manager tells a colleague about it, is that an unlawful disclosure under the GDPR?
A. Very possibly it is. Under the GDPR, personal data relating to an employee’s health is classed as special category personal data and there are strict rules around its processing and disclosure. A disclosure of personal data can be made verbally. If the employee’s medical condition has already been recorded in your systems, e.g. sickness absence records, then their personal data has been both processed and disclosed in this situation. If you don’t have the employee’s consent to make this disclosure and other lawful grounds for the processing, unlikely in an informal conversation situation), the verbal disclosure will breach the GDPR. Depending on the facts, the breach may need to be self-reported to the ICO, however, if nothing has been recorded about the employee’s medical condition in your systems at all, the verbal disclosure is unlikely to be caught by the GDPR . That said, it is still likely to amount to a breach of the employee’s confidentiality. You must insist that line mangers never discuss employees’ medical conditions in general conversation and you should make unauthorised disclosures a disciplinary offence.