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