Changes to Dividend taxation
Discussion
desolate said:
Which attacks are these exactly?
"Attacks" is probably far too strong a word for it, but this new proposed taxation is definitely going to put small businesses at a competitive disadvantage to big businesses. This isn't a huge surprise, though, as HMRC have never disguised the fact that they would like all citizens earning money to be doing so under PAYE and NI. Hence IR35 (which was heavily lobbied in favour of by the big IT consultancies / body shops). Anyway, isn't this off-topic? I thought the focus of this thread was now discussing the one individual case of the lady who gets dividends for childcare.
desolate said:
But haven't they just reduced corporation tax?
Not yet they haven't.Dividend tax increase by 7.5% in excess of £5000 from April 2016.
1% decrease in corporation tax from April 2017.
Further 1% decrease in corporation tax from April 2020.
The only worthwhile immediate benefit to businesses is the £1000 decrease in the Employer Allowance of £1000 from April 2016 but that increases profits so the Government in effect claws back £200 of it via Corporation Tax.
JonRB said:
"Attacks" is probably far too strong a word for it, but this new proposed taxation is definitely going to put small businesses at a competitive disadvantage to big businesses. This isn't a huge surprise, though, as HMRC have never disguised the fact that they would like all citizens earning money to be doing so under PAYE and NI. Hence IR35 (which was heavily lobbied in favour of by the big IT consultancies / body shops).
Anyway, isn't this off-topic? I thought the focus of this thread was now discussing the one individual case of the lady who gets dividends for childcare.
Why are you at a competitive disadvantage? Do you want to put your rates up to compensate for the increase in tax? The big IT consultancies use contractors themselves. It's advantageous for them to do so.Anyway, isn't this off-topic? I thought the focus of this thread was now discussing the one individual case of the lady who gets dividends for childcare.
The 7.5 % is a total kick in the balls for all Directors. Now I'm a Labour supporter and although this is a Labour policy it would have been acceptable but from the Tories? This is cutting deep into the very people that voted them in!
How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
fridaypassion said:
The 7.5 % is a total kick in the balls for all Directors. Now I'm a Labour supporter and although this is a Labour policy it would have been acceptable but from the Tories? This is cutting deep into the very people that voted them in!
How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
George Osborne, Cameron et al., are career politicians; they've never put their own money on the line in a business. This is just numbers on a spreadsheet.How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
This is a cynical raid on the small business community. I understand many take the view that this was an unfair loophole for director-owners vis-a-vis their PAYE counterparts, and that this move would level that gap. For me, that difference helped make the additional risks to invest in a business worthwhile.
I understand we have to all chip in the sorting the deficit, but such a large increase will certainly make me think twice before taking on some of the risks...
fridaypassion said:
The 7.5 % is a total kick in the balls for all Directors. Now I'm a Labour supporter and although this is a Labour policy it would have been acceptable but from the Tories? This is cutting deep into the very people that voted them in!
How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
I'm not getting it sorry.How do you think most Directors will cover the 7.5% tax? From our own pockets or just cutting back on staff or laying off? Our business is only relatively small but we will be at least £4000 worse off. Any thoughts we had on taking staff on are pushed back that bit further as you just think why bother? another 4k plus employers NI etc? Nah.
Most directors are on PAYE so it's absolutely in no way a "kick in the balls for all Directors"
I'm happy dealing with this issue rather than worrying about removal of tax credits.
desolate said:
I'm not getting it sorry.
Most directors are on PAYE so it's absolutely in no way a "kick in the balls for all Directors"
I'm happy dealing with this issue rather than worrying about removal of tax credits.
Dealing with what issue? A director is on PAYE, paid up to the free allowance and then on 20% which the company has paid the tax on. We are now getting taxed 7.5% on money we just paid the tax on! Most directors are on PAYE so it's absolutely in no way a "kick in the balls for all Directors"
I'm happy dealing with this issue rather than worrying about removal of tax credits.
It's not exactly an incentive to run your own business to then be on the same tax regime as if you were on the books with a company. OK we get effectively a 30k allowance as a couple but we will be paying £1000s in additional tax now. It's not an insignificant change.
plasticpig said:
JonRB said:
"Attacks" is probably far too strong a word for it, but this new proposed taxation is definitely going to put small businesses at a competitive disadvantage to big businesses. This isn't a huge surprise, though, as HMRC have never disguised the fact that they would like all citizens earning money to be doing so under PAYE and NI. Hence IR35 (which was heavily lobbied in favour of by the big IT consultancies / body shops).
Anyway, isn't this off-topic? I thought the focus of this thread was now discussing the one individual case of the lady who gets dividends for childcare.
Why are you at a competitive disadvantage? Do you want to put your rates up to compensate for the increase in tax? The big IT consultancies use contractors themselves. It's advantageous for them to do so.Anyway, isn't this off-topic? I thought the focus of this thread was now discussing the one individual case of the lady who gets dividends for childcare.
The difference is that when a client wanted my services as an employee of a consultancy. The consultancy would charge a fee which covered the cost of employing me, plus travel and subsistence to the client site, plus training costs, plus business overheads such as glass skyscrapers and plush boardrooms. All these deducted before calculating profit for tax purposes. The profits of course being payable as dividends. As far as the clients were concerned I was a contractor and the fact that I was working through Megacorp PLC rather than Jekyll LTD was pretty irrelevant.
Then I went contracting and could provide the same service but without the overheads of glass skyscrapers and plush boardrooms.
The consultancies didn't like this so demanded that I don't take dividends. This hasn't quite killed off contracting so they have lobbied for me to have to pay for my travel out of taxed income, which of course they don't have to.
It's presented as a levelling of the playing field between contractors and permies, but it is actually an attempt to tilt the playing field between contractors and consultancies.
PurpleMoonlight said:
desolate said:
I'm not getting it sorry.
Most directors are on PAYE so it's absolutely in no way a "kick in the balls for all Directors"
Really?Most directors are on PAYE so it's absolutely in no way a "kick in the balls for all Directors"
The Treasury believes they will raise £2,500,000,000 pa odd from it.
By "directors" are we actually talking about shareholding directors in small consulting/contracting companies?
desolate said:
I think i must have the wrong end of the stick.
By "directors" are we actually talking about shareholding directors in small consulting/contracting companies?
Anyone who owns shares be they Ltd or Plc could suffer this tax, but I suspect it will impact most on Ltd shareholding directors who usually pay themselves a low PAYE salary to use the personal allowance and then Dividends from the companies profits.By "directors" are we actually talking about shareholding directors in small consulting/contracting companies?
I don't pay 40% tax so not a high earner by definition yet this new tax will cost me £1800 pa odd.
If he had put basic rate income tax up to 25% there would be public outcry, but that is in effect what he has done to business owners.
Edited by PurpleMoonlight on Saturday 11th July 11:03
PurpleMoonlight said:
Anyone who owns shares be they Ltd or Plc could suffer this tax, but I suspect it will impact most on Ltd shareholding directors who usually pay themselves a low PAYE salary to use the personal allowance and then Dividends from the companies profits.
I don't pay 40% tax so not a high earner by definition yet this new tax will cost me £1800 pa odd
As someone who lives off dividends from multinationals - I consider myself to have been well and truly raped.I don't pay 40% tax so not a high earner by definition yet this new tax will cost me £1800 pa odd
PurpleMoonlight said:
Anyone who owns shares be they Ltd or Plc could suffer this tax, but I suspect it will impact most on Ltd shareholding directors who usually pay themselves a low PAYE salary to use the personal allowance and then Dividends from the companies profits.
I don't pay 40% tax so not a high earner by definition yet this new tax will cost me £1800 pa odd
I understand that. The post I questioned stated that is was a kick in the plums for "all directors"I don't pay 40% tax so not a high earner by definition yet this new tax will cost me £1800 pa odd
I may have been slightly pissed when replying but my point is that it isn't "all directors" it's "all shareholders."
It's probably the first step in the movement towards taxing all personal income equally and it goes some way to addressing the issue surrounding IR35. The government have been trying to get people to pay themselves a market salary for the work they do for some time. At moment people trick the system by inflating company profits to take advantage of the tax break for dividend income.
However it's undoubtedly a tax hike for shareholders.
90% of limited companies in the UK are classified as "Small Companies" and "owner managed" i.e. the shareholders and directors are the same people. I would suggest that at least 80% of the companies pay their director/shareholders making as much use of the so far favourable dividend tax treatment as possible.
These changes will obviously affect this practice to some extent but on the whole, paying through dividends is still advantageous - just not as advantageous as before.
There are still plenty of imponderables surrounding these new rules. Taxation has become very complicated in the past few years and has just become even more complex. It is still not 100% clear how these dividend allowance and bands are treated in conjunction with the "normal" tax bands and allowances. In addition, there is also the interaction between taxable income and benefit claims and tax credits - so directors with children for instance might find that the new rules allow them to keep a bit more of their Child Benefit.
These changes will obviously affect this practice to some extent but on the whole, paying through dividends is still advantageous - just not as advantageous as before.
There are still plenty of imponderables surrounding these new rules. Taxation has become very complicated in the past few years and has just become even more complex. It is still not 100% clear how these dividend allowance and bands are treated in conjunction with the "normal" tax bands and allowances. In addition, there is also the interaction between taxable income and benefit claims and tax credits - so directors with children for instance might find that the new rules allow them to keep a bit more of their Child Benefit.
Dr Jekyll said:
The big IT consultancies also use PAYE staff, I was one for many years.
The difference is that when a client wanted my services as an employee of a consultancy. The consultancy would charge a fee which covered the cost of employing me, plus travel and subsistence to the client site, plus training costs, plus business overheads such as glass skyscrapers and plush boardrooms. All these deducted before calculating profit for tax purposes. The profits of course being payable as dividends. As far as the clients were concerned I was a contractor and the fact that I was working through Megacorp PLC rather than Jekyll LTD was pretty irrelevant.
Then I went contracting and could provide the same service but without the overheads of glass skyscrapers and plush boardrooms.
The consultancies didn't like this so demanded that I don't take dividends. This hasn't quite killed off contracting so they have lobbied for me to have to pay for my travel out of taxed income, which of course they don't have to.
It's presented as a levelling of the playing field between contractors and permies, but it is actually an attempt to tilt the playing field between contractors and consultancies.
The HMRC aren't saying that you have to pay for your travel out of taxed income though. What they are saying is if you are under supervision, direction or control then you will have to pay for travel out of taxed income. My company (IT) uses a couple of one man band companies. We usually have one or two meetings to discuss the spec and scope of the work. They then go away and do the work. We don't tell them how to do the work. We don't insist that they do the work at our offices (they would just be a distraction and get in the way). We don't even tell them what programming language to use. We don't care as long as it runs on the O/S we specify and it matches the spec we give them which includes how we expect to interface with what they have done. There is no way that these guys will have to pay for their travel out of taxed income. The difference is that when a client wanted my services as an employee of a consultancy. The consultancy would charge a fee which covered the cost of employing me, plus travel and subsistence to the client site, plus training costs, plus business overheads such as glass skyscrapers and plush boardrooms. All these deducted before calculating profit for tax purposes. The profits of course being payable as dividends. As far as the clients were concerned I was a contractor and the fact that I was working through Megacorp PLC rather than Jekyll LTD was pretty irrelevant.
Then I went contracting and could provide the same service but without the overheads of glass skyscrapers and plush boardrooms.
The consultancies didn't like this so demanded that I don't take dividends. This hasn't quite killed off contracting so they have lobbied for me to have to pay for my travel out of taxed income, which of course they don't have to.
It's presented as a levelling of the playing field between contractors and permies, but it is actually an attempt to tilt the playing field between contractors and consultancies.
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