Budget dividend changes
Discussion
I have received the usual bumpf from my accountant highlighting the key budget points. However, time is precious and I haven't sufficient to trawl through everything right now.
One point that is on my mind is changes to personal & corporation taxation on shareholders dividends.
I usually pay myself for the new tax year by way of 1 large dividend in April (75% of salary) followed by 12 monthly salary payments subject to PAYE.
Can someone please outline any changes for me in laymans terms.
Many thanks.
One point that is on my mind is changes to personal & corporation taxation on shareholders dividends.
I usually pay myself for the new tax year by way of 1 large dividend in April (75% of salary) followed by 12 monthly salary payments subject to PAYE.
Can someone please outline any changes for me in laymans terms.
Many thanks.
There have been previous posts about this.
Since 1 April 2004, dividends have been subject to a special Corporation Tax charge of a straight 19%.
This is being abolished with effect from 1 April 2006.
So, if you intended to pay youself a dividend before the end of the personal tax year, i.e 5 April 2006, the clever thing to do might be to defer any such dividends into the window 1 April 2006 to 5 April 2006, this avoiding the 19% Corporation Tax charge.
Your accountant should be able to inform you whether this would be a worthwhile thing to do for your particular circumstances.
Give him a buzz for a chat.
>> Edited by Eric Mc on Monday 27th March 13:25
Since 1 April 2004, dividends have been subject to a special Corporation Tax charge of a straight 19%.
This is being abolished with effect from 1 April 2006.
So, if you intended to pay youself a dividend before the end of the personal tax year, i.e 5 April 2006, the clever thing to do might be to defer any such dividends into the window 1 April 2006 to 5 April 2006, this avoiding the 19% Corporation Tax charge.
Your accountant should be able to inform you whether this would be a worthwhile thing to do for your particular circumstances.
Give him a buzz for a chat.
>> Edited by Eric Mc on Monday 27th March 13:25
Thanks Eric.
I have already taken dividend (paid in April 2005) and 12 months salary for the current tax year 2005/06 so no requirement to defer a further dividend.
My question relates to the new year 2006/07. I will be paying myself circa £35k dividend and then 12 monthly salary payments subject to PAYE. I am trying to get at what tax will be due both personally and corp. based on a standard allowance of £5035.
I have already taken dividend (paid in April 2005) and 12 months salary for the current tax year 2005/06 so no requirement to defer a further dividend.
My question relates to the new year 2006/07. I will be paying myself circa £35k dividend and then 12 monthly salary payments subject to PAYE. I am trying to get at what tax will be due both personally and corp. based on a standard allowance of £5035.
The Income Tax rules on dividend income remain unchanged i.e. you will not pay any tax on the dividend AT ALL until your personal income takes you into the Higher Rate tax band. If and when it does, the Income Tax on that part of the dividends that falls into the Higher Rate band is taxed at 32.5%.
The other big change in Corporation Tax is that the £10,000 Zero rate band available to small trading companies has been abolished too. That means companies start paying CT at 19% on every £1 of taxable profit.
The other big change in Corporation Tax is that the £10,000 Zero rate band available to small trading companies has been abolished too. That means companies start paying CT at 19% on every £1 of taxable profit.
I could be wrong but as I read it in the budget, bottom line: You are 19% worse off on any dividends your company pays up to a total of £50k and no worse off thereafter.
I'm no accountant but based on what you describe it sounds as though you are no better off now paying dividends instead of PAYE.
Sucks doesn't it!
I'm no accountant but based on what you describe it sounds as though you are no better off now paying dividends instead of PAYE.
Sucks doesn't it!
The £50,000 profit "threshold" really applies to what will very soon be the old rules - i.e. the 19% on the Dividend payment.
From 1 April 2006, the £50,000 threshold will have no meaning. All company profits up to £300,000 will be taxed at a straight 19%.
From a tax and NI point of view, dividends are STILL better than salary - although you do have to be careful about
a) whether your company can legally pay a dividend and
b) how often you intend to pay yourself a dividend and
c) whether there are other non-company matters that need to be taken into account
From 1 April 2006, the £50,000 threshold will have no meaning. All company profits up to £300,000 will be taxed at a straight 19%.
From a tax and NI point of view, dividends are STILL better than salary - although you do have to be careful about
a) whether your company can legally pay a dividend and
b) how often you intend to pay yourself a dividend and
c) whether there are other non-company matters that need to be taken into account
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