Changes to Dividend taxation
Discussion
Okrib said:
So at what level does the higher rate kick in?
Previously when she has done her tax return (dividend income only) it has been at the same point as everyone else (£42765 or whatever it is).
Is it now going to be lower? By the sounds of it surely it must be? Because if there's no personal allowance then after £31785 it must go to higher rate.
So anyone paid by dividend with no salary would effectively be losing the equivalent of the personal allowance.
This article states that the personal allowance will still be taken into account before the new dividend takes kick in.Previously when she has done her tax return (dividend income only) it has been at the same point as everyone else (£42765 or whatever it is).
Is it now going to be lower? By the sounds of it surely it must be? Because if there's no personal allowance then after £31785 it must go to higher rate.
So anyone paid by dividend with no salary would effectively be losing the equivalent of the personal allowance.
http://www.itcontracting.com/new-dividend-tax-apri...
desolate said:
At moment people trick the system by inflating company profits to take advantage of the tax break for dividend income.
No, they don't "trick the system". They pay the tax that the law allows them to pay. If you're a non-smoker, are you "tricking the system" in avoiding the tax on smoking by not buying loads of packets of cigarettes?
Edited by JonRB on Saturday 11th July 11:39
HMRC has never had any problem with dividends. The issue they have always been concerned about was people using limited companies to disguise the true nature of what they are doing work-wise.
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
JonRB said:
No, they don't "trick the system". They pay the tax that the law allows them to pay.
If you're a non-smoker, are you "tricking the system" in avoiding the tax on smoking by not buying loads of packets of cigarettes?
Paying yourself (and maybe your wife) 10K then the rest in dividends is definitely playing the system. (playing the system may be a better term than tricking it)If you're a non-smoker, are you "tricking the system" in avoiding the tax on smoking by not buying loads of packets of cigarettes?
Edited by anonymous-user on Saturday 11th July 11:39
most people who use a personal company don't pay themselves the going rate for the job(s) they do. they pay whatever is convenient tax wise - which is currently a low salary this inflating the company profits.
All perfect legit and above board and something I do myself.
Eric Mc said:
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
No change the there then. HMRC (via whatever incumbent elected mouthpiece they speak through at the time) have never really had a very good track record in this respect. Why use a sniper rifle when a howitzer is more convenient. 
Eric Mc said:
HMRC has never had any problem with dividends. The issue they have always been concerned about was people using limited companies to disguise the true nature of what they are doing work-wise.
That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?That is why IR35 was devised.
It is not an issue unique to the UK. There is an article in this months "Taxation" magazine by John Whiting which outlines the problems cause by these arrangements and how other countries tackle them.
Osborne's changes will actually sweep up all dividends paid by all companies - so is rather a blunderbus approach to "levelling the playing field".
desolate said:
I understand that. The post I questioned stated that is was a kick in the plums for "all directors"
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.
If the end game is to treat company owners the same as those on PAYE what do you think might happen? Less new businesses? Old businesses shutting up shop? Can't be a good thing can it.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.
TX.
PurpleMoonlight said:
Terminator X said:
If the end game is to treat company owners the same as those on PAYE what do you think might happen? Less new businesses? Old businesses shutting up shop? Can't be a good thing can it.
TX.
Quite. TX.
There needs to be a reward for people creating jobs for other people.
I really don't think this represents a fundamental change in the rewards available to those building a business rather than working in a PAYE position.
Dr Jekyll said:
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?
False self employment and the situation you describe is exactly what the government is trying to stop. If your clients cant find the skills required in the contractor market then they will have to employ people with those skills.plasticpig said:
Dr Jekyll said:
What about those of us who work through limited companies because our clients are worried about being stung for employers NI and won't let us be self employed? What are we supposed to do?
False self employment and the situation you describe is exactly what the government is trying to stop. If your clients cant find the skills required in the contractor market then they will have to employ people with those skills.plasticpig said:
False self employment and the situation you describe is exactly what the government is trying to stop. If your clients cant find the skills required in the contractor market then they will have to employ people with those skills.
Don't know about you, but when I need a plumber or electrician to come in to do a specific job (and use a skill set I don't have in-house) then I'd rather not have to draw up a contract of employment for them, pay their NI, calculate their PAYE for them, liaise with HMRC on their behalf, and then have to give them a redundancy payout when they've done the job. Same goes for IT Contractors. If clients didn't benefit from the flexible working arrangements of contractors then the contract market wouldn't exist. Nor, indeed, would any kind of freelancing or casual labour.
Dr Jekyll said:
Then sack them again when the project is over and they don't need the skills anymore? It's temporary/flexible working the government is trying to stop, not false anything.
Nope. You are concentrating of on your particular industry. Look at the bigger picture. There are companies in the child day care sector who are forcing their workers toward being self employed. That's minimum wage sort of work and the companies are doing it purely to save money. There are cleaning companies who have done the same thing. These workers are not entrepreneurs; they are victims of companies who lack any moral principles. Starting a limited company purely on the basis of wanting to avoid tax is a crap reason for doing so. It should be about entrepreneurialism. From having an idea and growing a business around it.
plasticpig said:
Nope. You are concentrating of on your particular industry. Look at the bigger picture. There are companies in the child day care sector who are forcing their workers toward being self employed. That's minimum wage sort of work and the companies are doing it purely to save money. There are cleaning companies who have done the same thing. These workers are not entrepreneurs; they are victims of companies who lack any moral principles.
Starting a limited company purely on the basis of wanting to avoid tax is a crap reason for doing so. It should be about entrepreneurialism. From having an idea and growing a business around it.
The practices in the child care industry are not my fault and will not be changed by taxing me more or putting me out of work. Of course I'm concentrating on my industry, I'm legitimately interested in how the rules affect me and I'm just as much part of the bigger picture as child care workers are.Starting a limited company purely on the basis of wanting to avoid tax is a crap reason for doing so. It should be about entrepreneurialism. From having an idea and growing a business around it.
Secondly, contractors don't start a limited company to avoid tax, using either their own limited company or an umbrella company is an extra expense and complication forced on them by the clients and HMRC rules. Incidentally I use an umbrella company but the new rules on travel expenses apply just the same.
JonRB said:
Don't know about you, but when I need a plumber or electrician to come in to do a specific job (and use a skill set I don't have in-house) then I'd rather not have to draw up a contract of employment for them, pay their NI, calculate their PAYE for them, liaise with HMRC on their behalf, and then have to give them a redundancy payout when they've done the job.
Same goes for IT Contractors. If clients didn't benefit from the flexible working arrangements of contractors then the contract market wouldn't exist. Nor, indeed, would any kind of freelancing or casual labour.
Slight difference is that I don't tell a plumber what tools to use, dictate his working hours or implement a self billing system so I don't even to have to look at his invoice. He is also likely to be working for several clients at the same time. How flexible is an IT contractor? Can they go off site for half a day or even two days to go and fix a previous client's urgent issue? On Thursday can they say they won't be in on Friday because the weather is good and the golf course beckons? Because in my experience that's the sort of thing plumbers and electricians do all the time.Same goes for IT Contractors. If clients didn't benefit from the flexible working arrangements of contractors then the contract market wouldn't exist. Nor, indeed, would any kind of freelancing or casual labour.
plasticpig said:
Starting a limited company purely on the basis of wanting to avoid tax is a crap reason for doing so.
What about starting one because a) your clients demand you work through one and won't engage youotherwise and
b) because the government made it preferable to do in the late 1990's
plasticpig said:
Slight difference is that I don't tell a plumber what tools to use, dictate his working hours or implement a self billing system so I don't even to have to look at his invoice.
Same is true for freelancers who are outside of IR35Also, HMRC have confirmed that self-billing is irrelevant to employed status, plus you certainly can dictate to a plumber what his working hours are - he can be on an hourly rate and you can tell him what hours your house will be open (ie. you will be at home) to do the job you have contracted him to do. Exactly the same as an IT contractor.
You can specify exactly what taps you want your plumber to install in your bathroom. And you still wouldn't want to make him a PAYE employee, nor would you want to be forced to either.
Edited by JonRB on Saturday 11th July 16:44
plasticpig said:
How flexible is an IT contractor? Can they go off site for half a day or even two days to go and fix a previous client's urgent issue? On Thursday can they say they won't be in on Friday because the weather is good and the golf course beckons? Because in my experience that's the sort of thing plumbers and electricians do all the time.
In general yes, very few contractors allow the client to dictate working hours because both contractor and client know how this can be interpreted by HMRC. By definition a contractor tells the client when they won't be in, not asks.jammy_basturd said:
Doing something because a government (of four years) makes it attractive to do so has to be one of the worst reasons to do anything!
Why? When ISAs (or, rather TESSAs before them) were created, did people say "a savings account where the interest is tax free? That's morally wrong! I shall not be using this attractive new thing! In fact, I demand to pay more tax please!"Gassing Station | Business | Top of Page | What's New | My Stuff