Changes to Dividend taxation
Discussion
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.
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
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...
It very reassuring to know that someone earning £250,000 pa on paye receiving £5,000 pa dividends from an investment portfolio will now pay no additional tax, whereas someone earning £10,000 pa paye and £20,000 dividends from his own business will pay an additional £1,125 in tax.
Yep, we are all in it together .......
Yep, we are all in it together .......
Mandat said:
What point are you trying to make? The £250k salary on PAYE will still pay many times more in tax than the person on £10k PAYE + £20k dividends.
That it is not appropriate that someone earning 8 times the other should get a tax reduction while the other gets a tax increase.Lots of higher rate tax payers are going to gain by this if they have a small investment portfolio, whereas those who depend on their owner shareholding for their daily needs are going to suffer.
It is an ill conceived an unfair tax.
I suspect a hell of a lot of the £2.5BN the treasury believes it will gain comes from basic rate tax payers.
LastLight said:
I can't decide whether it will suit me or not. Should I pay out dividends this year, before the changes in April 16, and the corporation tax I'll have to pay at 20% this year anyway, or bank the money, pay the 20% CT then next year pay out £5000 of the stored remainder tax free and then 18% on whatever profits I've made by the end of the year?
18% CT isn't effective until 2020.As is usual with the Government, what they take starts immediately but what they give starts way in the future.
The dividend received will now count as income for assessment against the income tax bands.
So yes, you can draw slightly more dividends without hitting the 40% tax band. But at no point are you actually better off under the new system. There is a net gain for about £3000 of dividends where 25% tax would have been paid but now only 7.5% is but this doesn't offset what will be payable and isn't now.
So yes, you can draw slightly more dividends without hitting the 40% tax band. But at no point are you actually better off under the new system. There is a net gain for about £3000 of dividends where 25% tax would have been paid but now only 7.5% is but this doesn't offset what will be payable and isn't now.
This provides a good explanation of how things should work.
http://www.contractorcalculator.co.uk/dividend_tax...
http://www.contractorcalculator.co.uk/dividend_tax...
Shaoxter said:
But is this bit correct?
i.e. can you substitute does your unused personal allowance with dividends?
"If a contractor is paying a salary of £8,040, then they can take £34,960 of taxable dividends to bring their total earnings up to the higher rate threshold of £43,000"
Yes I believe so.i.e. can you substitute does your unused personal allowance with dividends?
"If a contractor is paying a salary of £8,040, then they can take £34,960 of taxable dividends to bring their total earnings up to the higher rate threshold of £43,000"
But it's not as tax efficient as PAYE as Corporation Tax will have been paid on the dividends, whereas using all the Personal Allowance via PAYE doesn't incur any Corporation Tax (but does NI of course).
Gassing Station | Business | Top of Page | What's New | My Stuff