Anyone have there own Company? What do you think of the new 7.5% dividend tax.

[Pork Knuckle Pete]

It's slightly ironic given that many years ago Gordon Brown the then Chancellor made the first 10k of net profit free from corporation tax ..thus encouraging people to 'go' Ltd and pay themselves a salary up to there personal allowance and take the next 10k free of tax ...needless to say this policy was dropped shortly after.

I remember this. And suddenly hundreds, if not 1000s, of small businesses all of a sudden were posting profits just below 10k.

 

[Pavilionaire]

Let's be clear about what is going on here. The government doesn't want all these directors of limited companies paying less tax/NI than the self-employed or the employed, so is starting a campaign to get rid of them.

Not only do they want more tax from them but they also want less compliance. A one-man band limited company will typically have a PAYE scheme, corporation tax scheme and their personal Self-Assessment, so three schemes, whereas the sole trader has one. Given that they want to reduce costs and raise more tax they will try and reduce the limited company compliance by taxing their way out of it.

It still pays to be limited right now but not only do I expect dividend tax to go up, I also expect penalties for late filing of company documents to become more punitive too. In a couple of years the sole trader route may actually be the better option.

Of course, by introducing the £5,000 NIL rate tax band for dividends a lot of owner-managers will start paying their spouse £11,000 salary and £5,000 dividend to mitigate against the tax rises and so we'll have a huge bigger issue with "income splitting" to avoid tax. Unfortunately, the government don't seem to have worked this out yet.

 

[warmleyseagull]

I see what you mean. Although, I think dividends would need to very high before it becomes more 'tax efficient' pay NI - employees' and employers' - than to pay the extra dividen tax. Something that's unlikely to affect most OMLs, because there's only so many hours and so much that one man can earn.

It's more likely to affect the owners of SMEs.

Yes, you may well be right though don't underestimate how much some people make out of OML's. Know some people who earn six figures in their 'company'. There is a brilliant book that comes out annually setting out all the scenarios,including pensions, other income, impact of spouses etc. I am awaiting 2016 version in 6 months' time.

 

[Pavilionaire]

If your spouse earns nothing then by paying them a salary of £11,000 and dividends of £5,000 then from next April an owner-manager earning £60K profit could save themselves £5,200 per year.

This is a realistic scenario for many sub-contractors. HMRC would regard it as tax avoidance but given most limited companies need managing, bookkeeping, invoice preparation, compliance etc it would be hard for HMRC to prove it was avoidance, particular if, say, the spouse loaned the company some money for assets too.

The government have just unwittingly created a huge and wholly unnecessary grey area because they don't think these things through properly. Most people are honest and want to do the right thing, but would also want to save a huge figure of £5,200 per year. That's the family summer holiday, Christmas and birthdays all sorted without really lifting a finger.

All this shenanigans is really all because of National Insurance.

 

[Bold Seagull]

I think I need to call my accountant!!

 

[Sheebo]

People who own their own company really should know the difference between their, there & they're

 

[wallyback]

From, an article on this:

New rules 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £8,000 (securing NICs benefits) -
Company profit after salary £50,000 10,000
Dividend paid of £40,000, taxed as:
£3,000 - covered by balance of personal allowance -
£5,000 @ 0% -
£27,000 @ 7.5% 2,025
£5,000 @ 32.5% 1,625
Total tax payable (new rules) £13,650


2016/17 as if under the old rules

Comparing old rules for 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £11,000 (covered by personal allowance) -
Company profit after salary £47,000 9,400
Dividend paid of £37,600 (£41,777 grossed up)
£32,000 @ 10% 3,200
£9,777 @ 32.5% 3,177
Less tax credit (4,177)
Total tax payable (old rules) £11,600



Increased tax payable following the changes for 2016/17 £2,050



The cost of this measure will decrease very slightly when corporation tax rates fall in 2017 to 19%, and to 18% by 2020.

 

[Bold Seagull]

People who own their own company really should know the difference between their, there & they're

Cheap shot! Surely after 12 years on NSC, you have developed a their, there, they're, your, you're filter?

 

[wallyback]

Cheap shot! Surely after 12 years on NSC, you have developed a their, there, they're, your, you're filter?

Fair comment

 

[Bozza]

From, an article on this:

New rules 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £8,000 (securing NICs benefits) -
Company profit after salary £50,000 10,000
Dividend paid of £40,000, taxed as:
£3,000 - covered by balance of personal allowance -
£5,000 @ 0% -
£27,000 @ 7.5% 2,025
£5,000 @ 32.5% 1,625
Total tax payable (new rules) £13,650


2016/17 as if under the old rules

Comparing old rules for 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £11,000 (covered by personal allowance) -
Company profit after salary £47,000 9,400
Dividend paid of £37,600 (£41,777 grossed up)
£32,000 @ 10% 3,200
£9,777 @ 32.5% 3,177
Less tax credit (4,177)
Total tax payable (old rules) £11,600

Increased tax payable following the changes for 2016/17 £2,050.

So, given someone on £58,000 through PAYE would 'lose' c£17k of that, these "companies" are still doing quite well it seems.

 

[nwgull]

From, an article on this:

New rules 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £8,000 (securing NICs benefits) -
Company profit after salary £50,000 10,000
Dividend paid of £40,000, taxed as:
£3,000 - covered by balance of personal allowance -
£5,000 @ 0% -
£27,000 @ 7.5% 2,025
£5,000 @ 32.5% 1,625
Total tax payable (new rules) £13,650


2016/17 as if under the old rules

Comparing old rules for 2016/17 Tax paid
Company profit before salary and tax £58,000
Salary £11,000 (covered by personal allowance) -
Company profit after salary £47,000 9,400
Dividend paid of £37,600 (£41,777 grossed up)
£32,000 @ 10% 3,200
£9,777 @ 32.5% 3,177
Less tax credit (4,177)
Total tax payable (old rules) £11,600



Increased tax payable following the changes for 2016/17 £2,050



The cost of this measure will decrease very slightly when corporation tax rates fall in 2017 to 19%, and to 18% by 2020.

I've just done that calc and doubled the profits to £116K which gives a tax burden of £41955 under new rules compared to £41100 under old rules: only £855 extra.

If my working is correct, then it seems that this will affect OMLs in the 50-60k bracket far more than people with businesses making >100k, which are more likely to be actual SMEs that employ people. This seems sensible.

 

[Pavilionaire]

So, given someone on £58,000 through PAYE would 'lose' c£17k of that, these "companies" are still doing quite well it seems.

Employees get paid annual leave and now, under Auto-Enrolment, mandatory employer pension contributions. Not to mention payment whilst on maternity and paternity leave. And they don't have a business to run and that goes with it.

There's one thing reducing the tax gap but if it is brought to parity them no one will want the hassle of starting up in business and that will be disastrous for the economy.

Reducing corporation tax is all about attracting and retaining big business in the UK - the CT reduction for SMEs is meaningless because they'll be paying more because of the dividend tax anyway.

 

[wallyback]

I've just done that calc and doubled the profits to £116K which gives a tax burden of £41955 under new rules compared to £41100 under old rules: only £855 extra.

If my working is correct, then it seems that this will affect OMLs in the 50-60k bracket far more than people with businesses making >100k, which are more likely to be actual SMEs that employ people. This seems sensible.

Not quite per this article:

This table shows how much more dividend tax you will pay in 2016/17 compared to the current year, assuming that you take the personal allowance as salary in each tax year (£10,600 and £11,000 respectively).

Try our 2016-17 Tax Hike Calculator to work out how much more tax you will pay.
NET DIVIDENDS
2015-16 TAX
2016-17 TAX
DIFFERENCE
£28,606.50 £0 £1,770 extra tax is £1,770
£30,000 £348 £1,875 extra tax is £1,527
£40,000 £2,848 £4,625 extra tax is £1,770
£50,000 £5,348 £7,875 extra tax is £2,527
£60,000 £7,848 £11,125 extra tax is £3,277
£70,000 £10,348 £14,375 extra tax is £4,027
£80,000 £12,848 £17,625 extra tax is £4,777
£90,000 £16,541 £21,000 extra tax is £4,459
£100,000 £20,233 £25,500 extra tax is £5,267
£110,000 £22,733 £30,000 extra tax is £7,267
£120,000 £25,233 £33,375 extra tax is £8,142
£130,000 £27,986 £36,625 extra tax is £8,639
£140,000 £31,041 £39,931 extra tax is £8,890
£150,000 £34,097 £43,741 extra tax is £9,644
£200,000 £49,374 £62,791 extra tax is £13,417

 

[Monkey Man]

I don't expect any sympathy but as someone who's been building up a limited company over the past five or six years, and have finally got to the point where the work is paying off and I'm managing to offer regular work to freelancers and am looking at taking on salaried staff and maybe an apprentice, this dividend tax has the potential for me to scale back those plans. I can't work out exactly how much more tax I'll be paying but the rudimentary online calculators suggest it could be the equivalent of what I currently pay myself as a monthly dividend.

No doubt the clever tax dodging millionaires will find a convenient way around all this but for the very small limited companies like mine there will be some quite negative effects.

I really don't mind paying tax. If I'm honest I don't mind paying MORE tax ... I'm lucky enough to have a fairly comfortable existence and it's right that I should pay proportionately. But this is going to be tricky for SMEs like mine and some may well tip over.

 

[Pavilionaire]

So to use just the first line of the above table - for those taking the lowest dividend and earning gross income of c. £43,000- that's a 4% personal tax rise in one year.

I can't recall an increase of that magnitude in a single year in my lifetime, even if you combine tax and NI increases together.

 

[Sheebo]

Cheap shot! Surely after 12 years on NSC, you have developed a their, there, they're, your, you're filter?

Haha very true - there's far worse out there on FB etc. Don't get me wrong, my spelling and grammar is atrocious on the net at times, but certain things like 'there, their & they're' are my pet hate

 

[wallyback]

http://www.ipetitions.com/petition/no-dividend-tax-for-small-business-owners

 

[nwgull]

Not quite per this article:

This table shows how much more dividend tax you will pay in 2016/17 compared to the current year, assuming that you take the personal allowance as salary in each tax year (£10,600 and £11,000 respectively).

Try our 2016-17 Tax Hike Calculator to work out how much more tax you will pay.
NET DIVIDENDS
2015-16 TAX
2016-17 TAX
DIFFERENCE
£28,606.50 £0 £1,770 extra tax is £1,770
£30,000 £348 £1,875 extra tax is £1,527
£40,000 £2,848 £4,625 extra tax is £1,770
£50,000 £5,348 £7,875 extra tax is £2,527
£60,000 £7,848 £11,125 extra tax is £3,277
£70,000 £10,348 £14,375 extra tax is £4,027
£80,000 £12,848 £17,625 extra tax is £4,777
£90,000 £16,541 £21,000 extra tax is £4,459
£100,000 £20,233 £25,500 extra tax is £5,267
£110,000 £22,733 £30,000 extra tax is £7,267
£120,000 £25,233 £33,375 extra tax is £8,142
£130,000 £27,986 £36,625 extra tax is £8,639
£140,000 £31,041 £39,931 extra tax is £8,890
£150,000 £34,097 £43,741 extra tax is £9,644
£200,000 £49,374 £62,791 extra tax is £13,417

Oh well, I guess that's where accountants earn their money: making sure people like me know their correct tax figures.

Quite a difference, but just have to deal with it.

 

[Hamilton]

I do. It's a totally justifiable tax.