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Do you know how the new government rules will impact your business and dividend payments?

 

We have put together a brief summary of the government’s latest updates – The new rules will impact every limited company. Find out now how these changes will apply to you for your particular circumstances and take advantage of our

Tax Healthcheck

Impact of new rules on dividends for owner managed businesses

From the new tax year the way in which income tax is calculated on dividends will change. The changes are summarised below:

  • The existing 10% tax credit will be scrapped and the (sometimes confusing) concept of net and gross dividends will disappear with this.
  • £5,000 tax free dividend allowance will be introduced and dividends declared in excess of this will be taxed at the following rates:
  • Dividends in the basic rate will be subject to income tax at a rate of 7.5% (previously an effective rate of 0%) (after salary of 10,800 this will be 26900 costing £2,017.50 in tax*) 
  • Dividends in the higher rate will be subject to income tax at a rate of 32.5% (previously an effective rate of 25%)
  • Dividends in the additional rate will be subject to income tax at 38.1% (previously an effective rate of 30.6%).

 If you usually take salary and dividends over £5,000 and haven’t had a tax bill previously, you most certainly will now!

For these reasons it may be worth reviewing the payment of dividends. If they are issued before 6th April 2016 they fall within the 2015/16 tax year and are taxed under the current dividend tax rules. This is particularly relevant if your income regularly exceeds the higher rate threshold or if you hold large cash reserves for distribution in future years (note that increasing taxable income beyond £100k will not be worthwhile not only due to the loss of all or part of your personal allowance).

One consolation is, if you are taking what I call basic rate dividends. In 2016/17 the amount of dividends you are taking increases because of the abolition of the 10% credit. If you take this increased amount and were to compare it to if you had the same amount last year, you would be better off in 2016/17 by at least £800.

 

Tax Healthcheck Just £49 + vat (normally £295 + vat) Ends 05/04/2016

  • We will calculate the impact based on a variety of scenarios for you based on your profit for this year to date.
  • *You will then be in a position to know how many dividends you can take most tax efficiently and you will be informed sufficiently enough to have a plan in place for the future growth of the company.

Email Sue Taylor at Taylor Accounting to take advantage of this offer.

*Your bookkeeping will need to be up to date, if you would like us to work on this we will be happy to complete this for you at our normal charge out rates.

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Added By: Luke Noble on 19th Feb 2016 - 16:31
Last Updated: 19th Feb 2016 - 16:57

Number of Views: 1204
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