Quick summary of impending changes in April

[too_many_details]

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]

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]

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]

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]

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.

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]

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]

It's going to cost you £2k.

Deal with it.

[Hobosapien]

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.

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.

[matzie]

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]

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.