Changes to Dividend taxation
Discussion
Granfondo said:
A question for Eric
Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
This should help: http://www.uktaxcalculators.co.uk/dividend-vs-sala...Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
Just use 50K per director/partner than add both upunder each scenario and compare.
I called myself Eric whilst typing...
David
sumo69 said:
Granfondo said:
A question for Eric
Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
This should help: http://www.uktaxcalculators.co.uk/dividend-vs-sala...Ltd co with 2 directors with profit of £100k and non ltd partnership with same £100k!
What would now be the difference in tax payable between them if the directors took it all out using dividends?
I hope you know what I mean!
Just use 50K per director/partner than add both upunder each scenario and compare.
I called myself Eric whilst typing..
David
Dr Jekyll said:
The hirers are not being unscrupulous. They don't want to take on permanent staff for short term projects, they want flexibility. They don't want me self employed because of the way HMRC might interpret this. So the options for me are an intermediate LTD company or unemployment.
You do seem to think contract working is some devious plot to deprive the inland revenue of their just desserts. It isn't, it is the simplest possible way of working. You get paid for working, you don't get paid for not working. All splendidly logical. For a hirer to simply want a job done without worrying about holiday entitlement sick pay or HR b
ks is perfectly reasonable.
Even if they are unscrupulous, that's hardly a reason for punishing me, I'm just the contractor.
If the hirer goes to a big IT consultancy such as Cap Gemini and hires someone with my skills to do exactly the same project, the consultancy will pay their employee a salary and travelling expenses in addition. The money they spend sending their staff around the country is a tax deductible business expense. But if they hire me instead, then due to this impending regulation my travel will not be tax deductible. How does that make sense?
If you are a wiling participant, then fine.You do seem to think contract working is some devious plot to deprive the inland revenue of their just desserts. It isn't, it is the simplest possible way of working. You get paid for working, you don't get paid for not working. All splendidly logical. For a hirer to simply want a job done without worrying about holiday entitlement sick pay or HR b
ks is perfectly reasonable.Even if they are unscrupulous, that's hardly a reason for punishing me, I'm just the contractor.
If the hirer goes to a big IT consultancy such as Cap Gemini and hires someone with my skills to do exactly the same project, the consultancy will pay their employee a salary and travelling expenses in addition. The money they spend sending their staff around the country is a tax deductible business expense. But if they hire me instead, then due to this impending regulation my travel will not be tax deductible. How does that make sense?
The point I am making is not everyone is happy with these arrangements as it does not suit their personality or psychology and they should not be FORCED to do something they don't want to.
Eric Mc said:
The point I am making is not everyone is happy with these arrangements as it does not suit their personality or psychology and they should not be FORCED to do something they don't want to.
I don't think anyone disagrees with that, Eric. By corollary, though, people shouldn't be prevented from conducting business in this manner if they wish to.
Eric Mc said:
It's a tricky one. The disincentive should be law based rather than tax based. Using tax as a stick or a carrot always results in unintended consequences.
Oh, for sure. In the late 90's the Chancellor at the time (I think it may even have been 'The Prudent Chancellor' (sic) Gordon Brown) changed the law on incorporation so that thousands of people who had previously been Sole Trader self-employed found it advantageous to incorporate. Then a few years later cooked up IR35 to "deal with" all these new PSCs. 
JonRB said:
Oh, for sure. In the late 90's the Chancellor at the time (I think it may even have been 'The Prudent Chancellor' (sic) Gordon Brown) changed the law on incorporation so that thousands of people who had previously been Sole Trader self-employed found it advantageous to incorporate. Then a few years later cooked up IR35 to "deal with" all these new PSCs.
I think you have that the wrong way round. The Companies Act 2006 was the big watershed. Single director companies and no need to appoint a company secretary or hold an AGM. IR35 was introduced in 1999.You are forgetting about the period when the first £10,000 of company profits was completely exempt from Corporation tax. This set of rules was in place between 2002 and 2004 (a number of years before the 2006 Companies Act came into place.
This alone caused a massive upsurge in the registration of new limited companies which completely surprised Brown (allegedly) and made him look like an utter tool.
The introduction of the new 2006 Companies Act (which fully came into effect in 2008) did not create the same type of upsurge in new company formations as the 2002 Budget.
Wiki outlines the rules as they existed back then -
Per Wiki -
The 2002 Budget[23] cut the starting rate to zero, with marginal relief applying in the same way.[5][24] This caused a vast surge in incorporations, as businesses that had operated as self-employed, paying income tax on profits from just over £5000, were attracted to the corporation tax rate of 0% on income up to £10,000.[25] Previously self-employed individuals could now distribute profits as dividend payments rather than salaries.[26] For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a basic rate tax credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid.[13] The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.[27]
The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance,[26] and the 2004 Budget[28] introduced a Non-Corporate Distribution Rate.[29] This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget[30] said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.[31]
This alone caused a massive upsurge in the registration of new limited companies which completely surprised Brown (allegedly) and made him look like an utter tool.
The introduction of the new 2006 Companies Act (which fully came into effect in 2008) did not create the same type of upsurge in new company formations as the 2002 Budget.
Wiki outlines the rules as they existed back then -
Per Wiki -
The 2002 Budget[23] cut the starting rate to zero, with marginal relief applying in the same way.[5][24] This caused a vast surge in incorporations, as businesses that had operated as self-employed, paying income tax on profits from just over £5000, were attracted to the corporation tax rate of 0% on income up to £10,000.[25] Previously self-employed individuals could now distribute profits as dividend payments rather than salaries.[26] For companies with profits under £50,000 the corporation tax rate varied between 0% and 19%. Because dividend payments come with a basic rate tax credit, provided the recipient did not earn more than the basic rate allowance, no further tax would be paid.[13] The number of new companies being formed in 2002–2003 reached 325,900, an increase of 45% on 2001–2002.[27]
The fact that individuals operating in this manner could potentially pay no tax at all was felt by the government to be unfair tax avoidance,[26] and the 2004 Budget[28] introduced a Non-Corporate Distribution Rate.[29] This ensured that where a company paid below the small companies' rate (19% in 2004), dividend payments made to non-corporates (for example, individuals, trusts and personal representatives of deceased persons) would be subject to additional corporation tax, bringing the corporation tax paid up to 19%. For example, a company making £10,000 profit, and making a £6,000 dividend distribution to an individual and £4,000 to another company would pay 19% corporation tax on the £6,000. Although this measure substantially reduced the number of small businesses incorporating, the Chancellor in the 2006 Budget[30] said tax avoidance by small businesses through incorporation was still a major issue, and scrapped the starting rate entirely.[31]
plasticpig said:
I think you have that the wrong way round. The Companies Act 2006 was the big watershed. Single director companies and no need to appoint a company secretary or hold an AGM. IR35 was introduced in 1999.
Yes, IR35 was introduced in 1999. But there were changes a few years previous to that which made it worth incorporating for thousands of people who had until then been Sole Trader because until then it wasn't worth incorporating (ie. no real benefit). I can't quote you chapter and verse on the legislation, but I'm pretty sure of this. You still needed a Company Secretary back then - this didn't change until 2006 as you say - but that was no real hardship as the majority of people incorporating were married so used their spouse, and if they didn't then often their accountants would take on the role. Maybe Eric can comment further.
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 .......
PurpleMoonlight said:
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 .......
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.Yep, we are all in it together .......
Eric Mc said:
You are forgetting about the period when the first £10,000 of company profits was completely exempt from Corporation tax. This set of rules was in place between 2002 and 2004 (a number of years before the 2006 Companies Act came into place.
Your right; I had forgotten that. 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.
Mandat said:
PurpleMoonlight said:
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 .......
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.Yep, we are all in it together .......
In my book, if end up paying almost half of your income in tax, you should receive a break on your sideline!
PurpleMoonlight said:
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.
However, ultimately, I am thankful that is is possible to benefit from dividend income (albeit with the new tax imposed), rather than taking all of the income under PAYE, which would incur a much greater tax liability.
I don't like having to paying more tax, but it is what it is. Any changes to tax will always affect one group or other, and whatever changes are made, someone will always be able to say that the changes were ill conceived and unfair.
Gassing Station | Business | Top of Page | What's New | My Stuff