ltd co thresholds changing??
Discussion
It's probably rumour that I've picked up off of forums such as this but is the 10k Ltd company tax threshold and dividend payment criteria changing in April?
If for instance we had less than 10k income last year would it be wise to take this out of the company as dividend payments before April. The rumours I've heard are that the 10k tax free threshold is going and tax on dividend payments is going to change (to what I don't know but no doubt it will mean being worse off)
Cheers, John
If for instance we had less than 10k income last year would it be wise to take this out of the company as dividend payments before April. The rumours I've heard are that the 10k tax free threshold is going and tax on dividend payments is going to change (to what I don't know but no doubt it will mean being worse off)
Cheers, John
That is correct. The £10,000 Zero Rate Corporation Tax band is being abolished with effect from 1 April.
However, the stupid 19% Corporation Tax applicable to dividend payments has also been abolished.
Gordon Brown introduced two measures which were supposed to help small limited companies. In 1998 he abolished the need to deduct Income Tax at source on dividend payments to shareholders. From that date onwards, dividends were Income Tax free unless the recipient received enough income in the tax year to push them into the Higher Rate tax bracket. That rule still exists.
In 2002 Gordon introduced the Zero Rate CT band for small companies. Obviously, it didn't take long for accountants to realise that a company having a profit of £10,000 or less and distributing that profit to the shareholders resulted in no tax liability whatsoever.
Gordon "fixed" this problem (which he had created, of course) in 2004 by inventing the 19% Corporation Tax charge on dividends (what he called the "Non Corporate Distribution" - or NCD).
He has now had to fix his "fix" by abolishing both the Zero Rate band and the NCD CT liability.
And people say he's clever!!!!!!
>> Edited by Eric Mc on Monday 27th February 10:17
However, the stupid 19% Corporation Tax applicable to dividend payments has also been abolished.
Gordon Brown introduced two measures which were supposed to help small limited companies. In 1998 he abolished the need to deduct Income Tax at source on dividend payments to shareholders. From that date onwards, dividends were Income Tax free unless the recipient received enough income in the tax year to push them into the Higher Rate tax bracket. That rule still exists.
In 2002 Gordon introduced the Zero Rate CT band for small companies. Obviously, it didn't take long for accountants to realise that a company having a profit of £10,000 or less and distributing that profit to the shareholders resulted in no tax liability whatsoever.
Gordon "fixed" this problem (which he had created, of course) in 2004 by inventing the 19% Corporation Tax charge on dividends (what he called the "Non Corporate Distribution" - or NCD).
He has now had to fix his "fix" by abolishing both the Zero Rate band and the NCD CT liability.
And people say he's clever!!!!!!
>> Edited by Eric Mc on Monday 27th February 10:17
Many thanks for the replies. So sometimes what I thought was rumour IS true.
On that basis then, if we were to take the money out of the company and divide it as dividend payments then do I take it that we would be taxed on whatever our current personal tax liability is (or what it could be if it took us to the higher rate) or is it at 19%?
If we were to keep the money in the company and not invest it or buy assets, is that amount then liable for taxation in the next financial year?
Sorry for the lame questions but don't want to give Gordon any more money than we need too.
Cheers, John
On that basis then, if we were to take the money out of the company and divide it as dividend payments then do I take it that we would be taxed on whatever our current personal tax liability is (or what it could be if it took us to the higher rate) or is it at 19%?
If we were to keep the money in the company and not invest it or buy assets, is that amount then liable for taxation in the next financial year?
Sorry for the lame questions but don't want to give Gordon any more money than we need too.
Cheers, John
Eric Mc said:
Gordon "fixed" this problem (which he had created, of course) in 2004 by inventing the 19% Corporation Tax charge on dividends (what he called the "Non Corporate Distribution" - or NCD).
He has now had to fix his "fix" by abolishing both the Zero Rate band and the NCD CT liability.
So how much tax do we now have to pay on Dividends Eric ?
The problem people have is separating their company's tax liabilities from their own personal tax liabilities.
At the moment, if the company pays out a dividend to the shareholders, there is an automatic COROPRATION tax amount calculated at 19% of the dividend value. This tax is payable by the company, not the individual. This rule is being abolished on 1 April 2006 and will not apply after that date.
An individual will only pay INCOME tax on the dividend amounts received in the tax year if their total personal income from all sources in that tax years pitches them into the higher rate tax band. Even though the Higher Rate Tax band is officially 40%, when applied to dividend income it is 32.5% on the value of the dividend.
These provisions are NOT changing on 1 April.
The general concensus is that, if you want to pay yourself a dividend from your own company before the end of the 2005/06 tax yer (i.e pre 5 April 2006), wait until 1 April 2006 as you will be into the new regime for companies from that date on but will still be before the end of your personal tax year.
>> Edited by Eric Mc on Monday 27th February 11:23
At the moment, if the company pays out a dividend to the shareholders, there is an automatic COROPRATION tax amount calculated at 19% of the dividend value. This tax is payable by the company, not the individual. This rule is being abolished on 1 April 2006 and will not apply after that date.
An individual will only pay INCOME tax on the dividend amounts received in the tax year if their total personal income from all sources in that tax years pitches them into the higher rate tax band. Even though the Higher Rate Tax band is officially 40%, when applied to dividend income it is 32.5% on the value of the dividend.
These provisions are NOT changing on 1 April.
The general concensus is that, if you want to pay yourself a dividend from your own company before the end of the 2005/06 tax yer (i.e pre 5 April 2006), wait until 1 April 2006 as you will be into the new regime for companies from that date on but will still be before the end of your personal tax year.
>> Edited by Eric Mc on Monday 27th February 11:23
Eric Mc said:
As ever, I always am surprised that people who run their own companies are not up to speed on these matters.
Hardly easy when they change every two minutes
We were looking at buying property with surplus cash this year only for Gords to change his mind and excluding residential property in relation to company pensions. 
Eric Mc said:
As ever, I always am surprised that people who run their own companies are not up to speed on these matters. They are pretty vital things to know and should be brought to the attention of company owners by their accountants.
Quite right...but some accountants are better than others Eric
sb-1 said:
As ever, I always am surprised that people who run their own companies are not up to speed on these matters. They are pretty vital things to know and should be brought to the attention of company owners by their accountants.
Quite right...but some accountants are better than others Eric
Yep. The good ones save you more than they cost.
Pretty happy with our local guys now...but the PH Eric Mc free and sound advice service is a fantastic addition.
Here's to you, Eric, mate.
Eric Mc said:
As ever, I always am surprised that people who run their own companies are not up to speed on these matters. They are pretty vital things to know and should be brought to the attention of company owners by their accountants.
Well that depends on you point of view. As a company we probably speak to our accountant three or four times a year. Mainly before and after the audit and were quite happy with that. Infact the audit is all we use an accountant for.
As a director I do not feel that I should be relying on an accountant or any one else for that matter to relay vital information that effects the comapny. Activley seeking that information is the only way.
Eric Mc said:
Different clients have different needs. The accountant should know what is appropriate for each client.
Certainly, clients are quick to point out when you FAIL to alert them to something that they would have found useful.
After reading this thread the other day Eric I looked into your info on Corp Tax. There's no information on the gov website and only after speaking to a local department via telephone did I get confirmation that these were in fact 'proposals' - there's nothing in stone as far as they are concerned at the moment. On that basis, I refer you back to my previous comment about how unfair it would be to expect my own accountant to inform me of changes a government department weren't sure of themselves ??????
>> Edited by Broccers on Wednesday 1st March 15:10
I'm not going to argue with you over this.
However, the points raised were based on Gordon Brown's Autumn Statement of last November. The normal procedure is for the "proposals" of the Autumn Statement to be incorporated enin the Budget in March. Although the provisions of the Budget come into effect either on Budget Day itself or on the following 5 April, in legal terms, they are still "provisional" until the Budget receives Royal Approval. This can often be as late as June or July. My clients wouldn't thank me if I delayed giving them tax advice until it finally became enshrined in law. By then, some options might have already been closed to them.
However, the points raised were based on Gordon Brown's Autumn Statement of last November. The normal procedure is for the "proposals" of the Autumn Statement to be incorporated enin the Budget in March. Although the provisions of the Budget come into effect either on Budget Day itself or on the following 5 April, in legal terms, they are still "provisional" until the Budget receives Royal Approval. This can often be as late as June or July. My clients wouldn't thank me if I delayed giving them tax advice until it finally became enshrined in law. By then, some options might have already been closed to them.
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