Changes to Dividend taxation

Changes to Dividend taxation

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anonymous-user

53 months

Wednesday 22nd July 2015
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FredClogs said:
Eric what's the professional opinion on building up a pot of cash in a company and then closing it down and getting money out via the CGT route, the limits is 11K I think, so a couple with equal share could take £22k tax free and their £10k dividend limit tax free. Is there rules or an eye on how many companies you could incorporate over a few years? It's a bit of a ball ache for invoicing and banking but I'd do it to say a few £thousand.

My ltd company has been running 10 years now, people are saying I should close it down anyway to cut any liabilities and start a new one.
You certainly couldn't do it regularly.

There is no hard and fast rule though. If you can build up a cash pot you can potentially take it out at entrepreneur's relief rates. (10%)

Eric Mc

121,788 posts

264 months

Thursday 23rd July 2015
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I attended a lecture a couple of years ago where someone advocated this as a practical strategy - especially if the proprietor could claim Entrepreneur's Relief on the gain. Changes to the rules have made claiming Entrepreneur's Relief more difficult, awkward and expensive so serial winding up is not as attractive an option as it used to be.

Obviously, there are other issues in life besides tax so operating your activities through successive limited companies (with commensurate name changes, HMRC registrations, bank changes, notifications to "customers" etc) can have a detrimental effect on your overall business - and reputation.

FredClogs

14,041 posts

160 months

Thursday 23rd July 2015
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Eric Mc said:
I attended a lecture a couple of years ago where someone advocated this as a practical strategy - especially if the proprietor could claim Entrepreneur's Relief on the gain. Changes to the rules have made claiming Entrepreneur's Relief more difficult, awkward and expensive so serial winding up is not as attractive an option as it used to be.

Obviously, there are other issues in life besides tax so operating your activities through successive limited companies (with commensurate name changes, HMRC registrations, bank changes, notifications to "customers" etc) can have a detrimental effect on your overall business - and reputation.
Yes indeed, I was just wondering whether it was something that was possible to do. I'll probably just stump up the extra, it won't be a lot and let's face it that MPs pay rise isn't going to pay for itself!

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Tuesday 28th July 2015
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This provides a good explanation of how things should work.

http://www.contractorcalculator.co.uk/dividend_tax...


Shaoxter

4,048 posts

123 months

Tuesday 28th July 2015
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PurpleMoonlight said:
This provides a good explanation of how things should work.

http://www.contractorcalculator.co.uk/dividend_tax...
Very good article.

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"

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Tuesday 28th July 2015
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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.

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).

FredClogs

14,041 posts

160 months

Tuesday 28th July 2015
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The agency I work through (as a Ltd company director) has just contacted me to request my National Insurance number - as part of the new "Intermediaries Legislation".

Can anyone shed any light on whether this is needed, whether the agency are being ott in the request and what the HMRC need this information for?

JonRB

74,404 posts

271 months

Tuesday 28th July 2015
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FredClogs said:
The agency I work through (as a Ltd company director) has just contacted me to request my National Insurance number - as part of the new "Intermediaries Legislation".

Can anyone shed any light on whether this is needed, whether the agency are being ott in the request and what the HMRC need this information for?
Apparently this is legit, according to everyone I have talked to (including my accountant).

However, I confess that I haven't yet got round to providing it to my agency despite several reminders.

FredClogs

14,041 posts

160 months

Tuesday 28th July 2015
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JonRB said:
FredClogs said:
The agency I work through (as a Ltd company director) has just contacted me to request my National Insurance number - as part of the new "Intermediaries Legislation".

Can anyone shed any light on whether this is needed, whether the agency are being ott in the request and what the HMRC need this information for?
Apparently this is legit, according to everyone I have talked to (including my accountant).

However, I confess that I haven't yet got round to providing it to my agency despite several reminders.
Yes the reading I've done does seem to suggest it's legit and also I read it's going some way to making IR35 redundant through the commitment to the test of "Supervision, direction or control" . Not many of us can argue we actually can escape that test and prove real "self employment", I mean we can argue it and be helped in that argument by an end client who understands our position but on any given day a situation could arise that proved otherwise, especially concerning "control"

So the question is what is the governments and HMRCs end goal here, it's not clear whether they want the info so they can tie the link between PSC directors earnings and their personal tax returns i.e are they coming after us?

Or are they trying to squeeze the role of the agencies and stamp out bad practice in that industry, which would more likely result in other areas of agency staffing, i.e temp staff arrangements, umbrella companies etc... presumably that is the bigger target.

I used to rely on the PCG for answers to these questions and piece of mind but of late they seem to have morphed into something less than useful. It's 50 shades of grey again, and after 10 years of doing this and living under the shadow of IR35 I'm still no clearer as to what is what.

Digga

40,207 posts

282 months

Tuesday 6th October 2015
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Thread resurrection, reason 325/1001:

The Big Lebowski said:
New st has come to light.
There's a petition that you can sign if you;re not happy about this: https://petition.parliament.uk/petitions/106525

I signed it, less because it makes significant changes to my personal circumstances, but rather that I really don't think it the right thing for the government to do. Granted, those evading the IR35 issues are perhaps milking the current system, but this sledgehammer is going to affect a lot of small enterprises, the likes of which IMHO get very little voice in Westminster and very little recognition for the amount and variety of employment and business they generate.

RegMolehusband

3,959 posts

256 months

Tuesday 6th October 2015
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Having set up a business in 2007, nearly failing during the recession and taking in a lodger to make ends meet, and with considerable stress and hard work only getting to the point where I cleared historical losses and could pay dividends in 2014 - I have just signed the petition.

I'm still playing financial catch-up and Mr. Osborne isn't helping with this new tax on entrepreneurship. As a result of taking a huge make or break risk and working hard I now have a growing business that collects additional VAT for the government and pays corporation tax. Thanks for the recognition Osborne!

Anyway the signatory count is climbing quite rapidly.

Sonic

4,007 posts

206 months

Tuesday 6th October 2015
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Also signed. I think this is just the first hit though, the next will be with restricting travel expenditure next April if that continues through.

I don't think they'll be happy until you're personally taxed to the level of a perm, regardless of all the additional taxes you pay as a result of incorporation.

jammy_basturd

29,776 posts

211 months

Tuesday 6th October 2015
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I'd sign if someone could point me to a petition that has made a blind bit of difference.

RegMolehusband

3,959 posts

256 months

Tuesday 6th October 2015
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jammy_basturd said:
I'd sign if someone could point me to a petition that has made a blind bit of difference.
http://news.bbc.co.uk/1/hi/uk/6349027.stm

and there's a few here

https://www.change.org/en-GB/victories



Guvernator

13,109 posts

164 months

Thursday 8th October 2015
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Signed the petition a while back and this is the response I got

"The Government is committed to supporting entrepreneurs and a fair tax system. Dividend tax reform allows further cuts in Corporation Tax and reduces the incentives for tax motivated incorporations.

The Government is fully committed to supporting business and entrepreneurship. As set out at the Summer Budget 2015, the Government believes that one of the best ways to support growth and enterprise in the UK is through lower and more competitive Corporation Tax rates.

Owners of small companies will also benefit from a range of other measures announced at the Summer Budget, including an increase in the National Insurance Employment Allowance to £3,000 from April 2016 and a permanent increase to the Annual Investment Allowance to £200,000 from January 2016. They will also pay less tax as a result of the increases to the tax-free Personal Allowance to £11,000 and to the Higher Rate Threshold to £43,000 in April 2016. We also have a commitment to go much further, taking the Personal Allowance to £12,500 and the Higher Rate Threshold to £50,000 by the end of this Parliament.

However, it is not possible to continue to reduce the Corporation Tax rate without looking at the overall balance of the tax system, including taxation of dividends. Lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation). Therefore the Government is reforming dividend taxation. These reforms, which will also simplify the dividend tax system, will significantly reduce the incentives for people to set up a company and pay themselves through dividends rather than wages simply to reduce their tax bill. Taxpayers and the Exchequer will now be £500 million better off as result of reduced incentives for tax motivated incorporation. Those who choose to work through a company continue to pay lower rates of tax than the employed or self-employed. But the reforms move the overall tax rates for the self-employed and those incorporated closer together, making the system fairer overall.

HM Treasury"

So basically we are stuffing over small businesses so we can lower Corporation Tax for our more important big business mates. We also don't like people setting up small Ltd Companies as we can't tax them as much as we'd like to.

RegMolehusband

3,959 posts

256 months

Thursday 8th October 2015
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I formed my limited company to give it credibility in the eyes of my customers and I prefer the structure and discipline it entails - not for tax purposes!

Terminator X

14,922 posts

203 months

Thursday 8th October 2015
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I think the point is that business owners have to go hugely above and beyond the "day job" otherwise the business would fall over. The thanks for that appears to be to treat the owners more and more like staff. Quite bizarre imho and counter productive in the end surely as if I'm being treated like staff I may as well reduce stress levels etc and go and work for someone else.

TX.

PurpleMoonlight

Original Poster:

22,362 posts

156 months

Friday 9th October 2015
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Well I'm going to reduce my dividend income and increase my pension contributions.

Overall the Government will get less in the long run.

Guvernator

13,109 posts

164 months

Friday 9th October 2015
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Terminator X said:
I think the point is that business owners have to go hugely above and beyond the "day job" otherwise the business would fall over. The thanks for that appears to be to treat the owners more and more like staff. Quite bizarre imho and counter productive in the end surely as if I'm being treated like staff I may as well reduce stress levels etc and go and work for someone else.

TX.
^^^ This. I didn't take ANY holiday for the first 2-3 years of starting my business, how many people are prepared to do that? Just one of the sacrifices I made to get it off the ground. Being very flexible, going above and beyond what most permies are prepared to do to keep the client happy because you have to as it's your lively-hood on the line and if you don't deliver, you could be out the door that same day, constantly looking for new clients\work plus all the additional admin of keeping a business running, bookkeeping, paperwork. Add on no sick pay, no free health insurance, life cover, most permie packages pay out £10k in benefits above and beyond what you get in your pay cheque for free. There is a massive difference between being a permie and running your own business. If I worked like a permie and got benefits like a permie then I'd quiet rightly expect to get taxed like a permie but I don't. If they make it so difficult that it's not worth the effort, I'll just close my business and go back to being a permie at which point HMRC will actually be getting LESS tax from me so who actually wins here?

It almost makes me think this isn't actually about money but about control, they WANT everyone to be a good little wage slave so that people are trapped and don't get ideas about trying to climb out of the rat race. This isn't an insult to permies, I was one for a LONG time before I thought f*ck it, I'm going to try and change my life and have something to look forward to besides 30 more years of doing the same thing then a meagre pension. A lot of people are happy without the hassle but for those who want to take the risk, the government should be an enabler, not try to kick you down at every opportunity. I'm seriously pee'd off that I voted for this lot, I thought they were all about entrepreneurship and people starting businesses, trying to do something different but it's all just more BS.

RegMolehusband

3,959 posts

256 months

Friday 9th October 2015
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Well the petition is almost at 30,000 now and at that rate should reach before 24th February the 100000 that's required for it to be "considered" for debate in Parliament.

I've shared the link on my business Twitter and Facebook feeds. It's all I can do - I can't go on strike unfortunately . . .


Edited to correct the 100000.

Edited by RegMolehusband on Friday 9th October 13:28