Jon Hook from Nor­wich Ac­coun­tancy Ser­vices talks about the lat­est tax dead­lines.

EDP Norfolk - - Property -

I’m go­ing to briefly ex­plain the com­ing changes to div­i­dend in­come in broad terms. Stephen Hawk­ing was told when writ­ing A Brief His­tory of Time that ev­ery equa­tion would halve his read­er­ship and I’m go­ing to as­sume the same is true of num­bers here!

If you’ve a few in­vest­ment shares this change is un­likely to af­fect you sig­nif­i­cantly. How­ever many of our clients have small lim­ited com­pa­nies, and when you’re run­ning a lim­ited com­pany it’s com­mon for the owner/di­rec­tor to pay them­selves a small salary, so small usu­ally that it doesn’t at­tract Na­tional In­sur­ance. It also re­duces the com­pany’s prof­its and the tax bill with it.

Di­rec­tors ob­vi­ously need more re­mu­ner­a­tion than this small salary, so the rest of the in­come comes in div­i­dends. Th­ese cur­rently come with a 10pc “tax credit” be­cause the com­pany has al­ready paid cor­po­ra­tion tax on them.

Un­der the new rules, the gov­ern­ment will give the first £5000 in div­i­dends tax free ir­re­spec­tive of level of in­come. What used to be a 0pc ef­fec­tive rate up to the higher rate thresh­old (cur­rently £42,385) is go­ing to be 7.5pc. Any div­i­dends paid that ex­ceed this higher rate thresh­old will have an ef­fec­tive rate of 32.5pc (pre­vi­ously 25pc), and if you have in­come over £150,000 then the ef­fec­tive rate is 38.1pc!

The big is­sue is that the gov­ern­ment is now “dou­ble dip­ping” on com­pany prof­its. They hit the com­pany with cor­po­ra­tion tax, then hit the share­holder again on the same money when monies are paid out. The con­clu­sion? This is not an im­prove­ment for small busi­nesses.

Con­tact Jon Hook at Nor­wich Ac­coun­tancy Ser­vices, Lon­don House, 68 Lon­don Street, Nor­wich, NR2 1JT; 01603 630882; [email protected]­wichac­coun­tan­cy­ser­vices.co.uk

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