PDA

View Full Version : Quick summary of impending changes in April



too_many_details
12th February 2016, 17:21
Hi,

I've seen some of the changes to dividend tax that the Chancellor has mentioned. Can someone clarify if this is definitely happening and what to do next financial year?

Currently I operate as a Ltd company and am the only employee/director. I take about £10k as salary and the rest as dividends and I do end up in the higher rate tax bracket (about £60k in dividends).

Is the advice to try and stay below the higher rate threshold? Does the benefit of being a contractor change against being permie?

Sorry for my newbie questions but its hard to get up to date information on this (have searched the forums).

Thanks

R

TheFaQQer
12th February 2016, 17:24
I've seen some of the changes to dividend tax that the Chancellor has mentioned. Can someone clarify if this is definitely happening and what to do next financial year?

Currently I operate as a Ltd company and am the only employee/director. I take about £10k as salary and the rest as dividends and I do end up in the higher rate tax bracket (about £60k in dividends).

Is the advice to try and stay below the higher rate threshold? Does the benefit of being a contractor change against being permie?

Yes, it's happening.

The advice is to look at your individual circumstances and calculate what is best for you to do - no-one else knows what your expenditure is, what income you require, what other earnings you have, whether you have any other income as a family, etc.

If you can't work it out, maybe your accountant is the best person to ask instead.

mudskipper
12th February 2016, 20:46
If you're going into higher rate anyway, and yourCo has sufficient profit, you may be better to take more dividends before April to avoid paying the new tax on the higher rate part. But your accountant is the best person to go through it with you.

Hobosapien
13th February 2016, 09:30
Am I right in that if I've already taken a divi for last year's accounts (filed at start of this year when divi was raised) if I was to try to take another one before the April divi tax change I'd have to worry about moving into the next personal tax boundary, as both divis are in the same tax year?

Also there's no way of raising divi before April but leave it in company to avoid paying personal tax, as personal tax it's based on when divi is raised with company rather than when drawn from company into personal account?

I tried asking my accountant but he just laughed down the phone. Maybe 8pm on a Friday evening wasn't the best time.

jamesbrown
13th February 2016, 12:09
Am I right in that if I've already taken a divi for last year's accounts (filed at start of this year when divi was raised) if I was to try to take another one before the April divi tax change I'd have to worry about moving into the next personal tax boundary, as both divis are in the same tax year?

Also there's no way of raising divi before April but leave it in company to avoid paying personal tax, as personal tax it's based on when divi is raised with company rather than when drawn from company into personal account?

I tried asking my accountant but he just laughed down the phone. Maybe 8pm on a Friday evening wasn't the best time.

:laugh:laugh:laugh Seriously, with that level of knowledge, you need to be concerned about whether you can execute your responsibilities as a director. Your personal tax year has nothing to do with your company tax year. You pay personal taxes according to when the income is received. If you've received more than the higher rate threshold in the 2015/16 personal tax year, ending 5 April, you will pay higher rate tax. You can declare a dividend and credit it to the Director's Loan Account, pending payment, but you won't avoid personal tax on it. Once the money is placed unreservedly at your disposal (i.e. dividend declared, minuted, and pending payment), it's taxable income.

northernladuk
13th February 2016, 12:12
Am I right in that if I've already taken a divi for last year's accounts (filed at start of this year when divi was raised) if I was to try to take another one before the April divi tax change I'd have to worry about moving into the next personal tax boundary, as both divis are in the same tax year?

Also there's no way of raising divi before April but leave it in company to avoid paying personal tax, as personal tax it's based on when divi is raised with company rather than when drawn from company into personal account?

I tried asking my accountant but he just laughed down the phone. Maybe 8pm on a Friday evening wasn't the best time.

And we wonder why HMRC are trying to ruin contracting. This makes me want to cry, not laugh.

SussexSeagull
13th February 2016, 20:50
It's going to cost you £2k.

Deal with it.

Hobosapien
15th February 2016, 11:56
Thanks guys.

I've mostly always had 'the max divi to remain within the basic tax bracket 'declared when the accountant preps the year end accounts, and due to me having already done so in the current tax year there is no legit workaround to avoid the April divi tax change, if indeed it goes ahead, without going into the higher personal tax bracket.

So to answer my 'am i right', yes I am. :tongue

Saved me a few quid as my accountant has an idiot question charge. Thankfully no cost asking here apart from the potential to be banned for bringing the professional forums into disrepute. :eyes

matzie
15th February 2016, 13:19
Some more potentially bad news for you OP - you may well have to start making "payments on account" each January and July - so the first time around you're looking at a 50% extra to pay compared to what you're used to. Even (IIUC) basic rate people with divi tax to pay may well fall into this regime next year.

jamesbrown
15th February 2016, 15:16
Even (IIUC) basic rate people with divi tax to pay may well fall into this regime next year.

Yes, the majority will be required to make payments on account. The lower bound is 1k, so anyone paying up to the higher rate limit with a majority in dividends (i.e. a ~2k liability) will need to put aside ~1k for Jan 2017 and ~1k for July 2017.

WordIsBond
15th February 2016, 15:52
Yes, the majority will be required to make payments on account. The lower bound is 1k, so anyone paying up to the higher rate limit with a majority in dividends (i.e. a ~2k liability) will need to put aside ~1k for Jan 2017 and ~1k for July 2017.
Isn't POA based on prior year's SA tax liability? If so, the first for basic rate taxpayers won't be until Jan 2018.

jamesbrown
15th February 2016, 16:19
Isn't POA based on prior year's SA tax liability? If so, the first for basic rate taxpayers won't be until Jan 2018.

Yes, quite right, Jan 2018 for the 2016/17 tax year, assuming they don't do anything odd (some have already reported collection via their tax codes). However, anyone paying an extra dividend this year (above the higher rate limit) should bear that future liability in mind when reducing their POA for the 2016/17 tax year.

SpontaneousOrder
15th February 2016, 21:44
It's going to cost you £2k.

Deal with it.

A lot more than 2k.

WordIsBond
16th February 2016, 09:58
Yeah. I said when the change came in that HMRC would have a windfall in January 2017 from a lot of people bringing dividends forward into the 2015-2016 year. Obviously, if you are taking dividends in the higher rate band, it makes a lot more sense to do it this year than next. And anyone doing that needs to obviously be prepared to pay that tax next January, but also be thinking about how it affects POA.

SpontaneousOrder
16th February 2016, 11:07
Yeah. I said when the change came in that HMRC would have a windfall in January 2017 from a lot of people bringing dividends forward into the 2015-2016 year. Obviously, if you are taking dividends in the higher rate band, it makes a lot more sense to do it this year than next. And anyone doing that needs to obviously be prepared to pay that tax next January, but also be thinking about how it affects POA.

Is this POA talk just about the existing requirements for self-assessment? Or has there been a change scheduled?

TheFaQQer
16th February 2016, 11:49
Is this POA talk just about the existing requirements for self-assessment? Or has there been a change scheduled?

It's the existing requirements. But if you pay yourself up to the higher rate threshold via low salary and then dividends, you won't have anything to pay on account because you don't owe tax. Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.

SpontaneousOrder
16th February 2016, 13:32
It's the existing requirements. But if you pay yourself up to the higher rate threshold via low salary and then dividends, you won't have anything to pay on account because you don't owe tax. Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.

Oh, right. I see now. Thanks.

Hobosapien
18th February 2016, 17:01
Under the new regime, the dividend tax is going to mean you owe enough tax to require payment on account from January 2018.


That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.

As this divi tax will also affect those with investments in shares that pay divis maybe the rules for POA will be tweaked so not paying in advance for profits that aren't guaranteed.

northernladuk
18th February 2016, 17:06
That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.

As this divi tax will also affect those with investments in shares that pay divis maybe the rules for POA will be tweaked so not paying in advance for profits that aren't guaranteed.

But the way we use Divis it is predicted income which is exactly what HMRC are having a go at us for.... Bonuses should not normally be 75% of your income. So you are right in theory but the way we use them is different in HMRC's eyes.

Actually, they aren't bonuses at all thinking about it. They are returns on investment linked to profit so not a bonus??

WordIsBond
18th February 2016, 17:14
That feels wrong, not that it will stop HMRC of course. Dividends are 'bonuses' due to making profit where POA is for predicted income based on previous self assessment. Dividends are not usually predicted income, regardless of accountancy methods regarding PAYE/Divi splits as LTD based contractors.
Dividends are pretty well predictable by the time POA is due. For any particular tax year, the first payment is due 31 January (tax year is 80% complete by that point) and 31 July after the tax year. So you generally know whether your income is going to be more or less than the previous year.

If it is more or the same, you have to pay half of what you paid the previous year for each payment. If it is going to be less, you can work out about what your tax will be and ask for a POA reduction.

So it really isn't that bad. It means they get the money earlier than they would have, but not before you've received the income being taxed, and if it is too high for that income they will reduce it.

Hobosapien
18th February 2016, 17:24
Yes you're right, I did put bonuses in single quotes to mean not really a true bonus.

Divis are bonuses in that they are unpredictable as far as knowing for sure what profit will be in play at the end of a tax year when you start that tax year. Even those contractors doing income splits between PAYE/Divis don't know for sure how many billable days they may work in the next year or if the current contract will last that year.

POA should be optional if it really is being sold as a benefit to the self employed to pay their future tax in instalments.

Do we get interest from HMRC if we overpay tax via POA? If so is it at the same interest rate we have to pay for late tax payments? Could be a nice little earner if it was paying better interest rates than typical savings accounts. :smokin

WordIsBond
18th February 2016, 17:53
POA should be optional if it really is being sold as a benefit to the self employed to pay their future tax in instalments.
You are going to have a hard life if you believe people take money from you for your benefit, whether those people are paid by HMG or not.

Do we get interest from HMRC if we overpay tax via POA?
You will attract a lot of interest from them if you underpay, but maybe not the kind of interest you meant.