Changes to Dividend taxation
Discussion
Why should it be?
Women fought very hard for independent taxation. They've had it for almost 30 years now. Intermingling allowances between married couples undermines the ethos of independence.
Having said that, there are some tax advantages in being married - mainly in respect of capital taxes such as Capital Gains Tax or Inheritance Tax.
Nothing to do with "Business" of course so not really the right forum.
Women fought very hard for independent taxation. They've had it for almost 30 years now. Intermingling allowances between married couples undermines the ethos of independence.
Having said that, there are some tax advantages in being married - mainly in respect of capital taxes such as Capital Gains Tax or Inheritance Tax.
Nothing to do with "Business" of course so not really the right forum.
ATG said:
The objective of cracking down on TMI is very sensible.
I agree. ONS say there are currently around 652,000 actively trading director only companies. HMRC has taken a big hit on PAYE and Income Tax revenue because of this. Osborne's approach seems fair to me. Get a bit more tax take from those directors but don't overdo it. It's still far more efficient to pay through dividends than PAYE and as someone who will be affected by the changes I really can't complain as it's still a good deal compared to paying through PAYE.Perhaps if they weren't so keen to over tax and overcharge NIC through the PAYE system, and the employment regulations weren't so stringent - perhaps there would be less of an incentive for both potential employers and employees to seek alternative routes to how they engage with each other?
plasticpig said:
It's still far more efficient to pay through dividends than PAYE and as someone who will be affected by the changes I really can't complain as it's still a good deal compared to paying through PAYE.
Mmmmm, gaps a lot closer now if you factor in extra accountancy costs etc. Unless i'm missing something??Eric Mc said:
Why should it be?
Women fought very hard for independent taxation. They've had it for almost 30 years now. Intermingling allowances between married couples undermines the ethos of independence.
Having said that, there are some tax advantages in being married - mainly in respect of capital taxes such as Capital Gains Tax or Inheritance Tax.
Nothing to do with "Business" of course so not really the right forum.
She works looking after our children. She gets no salary, only dividend income from a family company.Women fought very hard for independent taxation. They've had it for almost 30 years now. Intermingling allowances between married couples undermines the ethos of independence.
Having said that, there are some tax advantages in being married - mainly in respect of capital taxes such as Capital Gains Tax or Inheritance Tax.
Nothing to do with "Business" of course so not really the right forum.
Thanks to these tax changes, she will now lose over 50% of her personal allowance and face a huge tax rise.
The result is probably that she will have to go back to work, we will have to employ a nanny to look after our kids, and effectively she will be working for below the national minimum wage due to the associated costs.
Why shouldn't she be able to transfer her personal allowance to me to make the most efficient use of it possible? Is it fair to take her away from looking after kids to make her work for a net monthly income (after childcare costs) of about £1000 / month?
surveyor said:
From the Budget Document.
NOTE- this does not band the Dividends, but relates the % to which tax band the individual is in. I'm not sure if this is intentional or not. - Look at 1.188
Not sure if anyone picked up on this - but I read it the same as surveyor when I read the actual Budget release.NOTE- this does not band the Dividends, but relates the % to which tax band the individual is in. I'm not sure if this is intentional or not. - Look at 1.188
CoE said:
....
1.188 The government will set the dividend tax rates at 7.5% for basic rate taxpayers,
32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers....
1.188 The government will set the dividend tax rates at 7.5% for basic rate taxpayers,
32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers....
I don't think there are bandings as such but if you are a higher rate tax payer then you will pay 32.5% on ALL dividend income over the £5k.
..or are we reading this wrong??
Okrib said:
She works looking after our children. She gets no salary, only dividend income from a family company.
Thanks to these tax changes, she will now lose over 50% of her personal allowance and face a huge tax rise.
The result is probably that she will have to go back to work, we will have to employ a nanny to look after our kids, and effectively she will be working for below the national minimum wage due to the associated costs.
Why shouldn't she be able to transfer her personal allowance to me to make the most efficient use of it possible? Is it fair to take her away from looking after kids to make her work for a net monthly income (after childcare costs) of about £1000 / month?
Have you considered employing her in the family company up to the NI threshold or the personal allowance?Thanks to these tax changes, she will now lose over 50% of her personal allowance and face a huge tax rise.
The result is probably that she will have to go back to work, we will have to employ a nanny to look after our kids, and effectively she will be working for below the national minimum wage due to the associated costs.
Why shouldn't she be able to transfer her personal allowance to me to make the most efficient use of it possible? Is it fair to take her away from looking after kids to make her work for a net monthly income (after childcare costs) of about £1000 / month?
Because she can't have it both ways. She's either an independent woman or she's part of a joint enterprise.
And what about those in non-married relationships - which accounts for almost half of all such relationships. Should they be included too?
If so, how would you decide what relationships count and what ones don't.
And then you have the gay relationships to factor in.
And what about those in non-married relationships - which accounts for almost half of all such relationships. Should they be included too?
If so, how would you decide what relationships count and what ones don't.
And then you have the gay relationships to factor in.
Eric Mc said:
Perhaps if they weren't so keen to over tax and overcharge NIC through the PAYE system, and the employment regulations weren't so stringent - perhaps there would be less of an incentive for both potential employers and employees to seek alternative routes to how they engage with each other?
If it was me I would scrap the whole lot and just have a flat rate sales tax. I realize that isn't a realistic prospect however. 
Okrib said:
Thanks to these tax changes, she will now lose over 50% of her personal allowance and face a huge tax rise.
What?She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
plasticpig said:
If it was me I would scrap the whole lot and just have a flat rate sales tax. I realize that isn't a realistic prospect however.
I am not against Income Tax. I'm not against NIC. I'm not against PAYE.What I am against is the fact that the systems in place at the moment allow vastly different tax outcomes to be arranged if people go down certain routes in arranging their employment/work affairs.
The discrepancies between employment/self employment/limited company set ups are too wide and need evening out - in a sensible and simplified way - not the current mish mash set of complex rules and interpretations.
Directors can extract money from their own company in many, many different ways - some very tax efficient and some very tax inefficient.
The most inefficient way is obviously drawing all of it in the form of salary. More efficient is to combine salary with dividends (if dividends are possible - that's not always the case). With yesterday's changes, the underlying rules on the taxation of dividends have changed radically and this will make the salary/dividend mix less tax efficient than it was - but still superior to a full salary extraction.
Directors can draw money from the company completely tax free if they are recovering from the company business expenditure amounts they have funded from their own personal resources. This is very common with small owner managed companies where directors will use their own personal cash, bank account or credit card account to pay for company related costs. This has not changed after yesterday.
Directors sometimes make capital injections in the form of cash or assets into their own companies. They can recompense themselves for such amounts tax free at a later date.
In most cases, if a company pays a personal cost on behalf of a director, this will result in a taxable benefit in kind. This will (obviously) result in additional personal Income Tax being payable. With some Benefits, there may be additional Class 1A Employer's NIC to pay - but not any Employee's NI. Some benefits are NI free.
One benefit - a company pension scheme - can be set up which results in no taxable benefit at all.
The most inefficient way is obviously drawing all of it in the form of salary. More efficient is to combine salary with dividends (if dividends are possible - that's not always the case). With yesterday's changes, the underlying rules on the taxation of dividends have changed radically and this will make the salary/dividend mix less tax efficient than it was - but still superior to a full salary extraction.
Directors can draw money from the company completely tax free if they are recovering from the company business expenditure amounts they have funded from their own personal resources. This is very common with small owner managed companies where directors will use their own personal cash, bank account or credit card account to pay for company related costs. This has not changed after yesterday.
Directors sometimes make capital injections in the form of cash or assets into their own companies. They can recompense themselves for such amounts tax free at a later date.
In most cases, if a company pays a personal cost on behalf of a director, this will result in a taxable benefit in kind. This will (obviously) result in additional personal Income Tax being payable. With some Benefits, there may be additional Class 1A Employer's NIC to pay - but not any Employee's NI. Some benefits are NI free.
One benefit - a company pension scheme - can be set up which results in no taxable benefit at all.
Eric Mc said:
Directors can extract money from their own company in many, many different ways - some very tax efficient and some very tax inefficient.
The most inefficient way is obviously drawing all of it in the form of salary. More efficient is to combine salary with dividends (if dividends are possible - that's not always the case). With yesterday's changes, the underlying rules on the taxation of dividends have changed radically and this will make the salary/dividend mix less tax efficient than it was - but still superior to a full salary extraction.
Directors can draw money from the company completely tax free if they are recovering from the company business expenditure amounts they have funded from their own personal resources. This is very common with small owner managed companies where directors will use their own personal cash, bank account or credit card account to pay for company related costs. This has not changed after yesterday.
Directors sometimes make capital injections in the form of cash or assets into their own companies. They can recompense themselves for such amounts tax free at a later date.
In most cases, if a company pays a personal cost on behalf of a director, this will result in a taxable benefit in kind. This will (obviously) result in additional personal Income Tax being payable. With some Benefits, there may be additional Class 1A Employer's NIC to pay - but not any Employee's NI. Some benefits are NI free.
One benefit - a company pension scheme - can be set up which results in no taxable benefit at all.
thankyou for the clarificationThe most inefficient way is obviously drawing all of it in the form of salary. More efficient is to combine salary with dividends (if dividends are possible - that's not always the case). With yesterday's changes, the underlying rules on the taxation of dividends have changed radically and this will make the salary/dividend mix less tax efficient than it was - but still superior to a full salary extraction.
Directors can draw money from the company completely tax free if they are recovering from the company business expenditure amounts they have funded from their own personal resources. This is very common with small owner managed companies where directors will use their own personal cash, bank account or credit card account to pay for company related costs. This has not changed after yesterday.
Directors sometimes make capital injections in the form of cash or assets into their own companies. They can recompense themselves for such amounts tax free at a later date.
In most cases, if a company pays a personal cost on behalf of a director, this will result in a taxable benefit in kind. This will (obviously) result in additional personal Income Tax being payable. With some Benefits, there may be additional Class 1A Employer's NIC to pay - but not any Employee's NI. Some benefits are NI free.
One benefit - a company pension scheme - can be set up which results in no taxable benefit at all.
desolate said:
I really don't think the changes are that dramatic.
Yes it's chipped away at the differential when compared to PAYE but as far as I can tell it's approx a 5% difference before taking the reduction in Corporation tax into consideration.
So it's a hike, but hardly catastrophic.
That's my overall take on it. This change will come into effect 9 months from now, contractors renewing will just have to negotiate a higher renewal rate with their next or current client to cover the increase. It wouldn't require a huge increase in day rate to cover the increase. Yes it's chipped away at the differential when compared to PAYE but as far as I can tell it's approx a 5% difference before taking the reduction in Corporation tax into consideration.
So it's a hike, but hardly catastrophic.
Somewhere back in the pages someone estimated an increase in tax paid for a £60k per annum contractor as about £1500, so assuming 235 days a year worked that's what £6 a day increase to cover it. So for example requesting an increase from £300 a day to £305 a day is unlikely to be worth dropping an existing contractor for?
Remember it is far easier to obtain a rate increase as a contractor than to obtain a wage increase as a permie.
In a nutshell, stop whinging.
PurpleMoonlight said:
What?
She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
Assuming a current net dividend of £40,000 and no PAYE salary, currently there is 0 tax to pay.She hasn't lost her personal allowance as it couldn't be used against Dividends anyway.
I agree there is an increased tax charge against the Dividends but to claim that she will now have to go out to work as a consequence is absurd.
Next year under the same situation there will be £3,375 to pay (calculations from UK Tax Calculator)
We can't afford to lose that sort of money. It's a stupidly high tax hike, and will result in her having to go to work.
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