Dividend, Tax, Changes, 2016, 2017, 2016-2017, 16-17, 16'-17', dividend tax
 

        With HMRC’s planned dividend threshold changes, we wanted to give you a brief summary of the effect this might have to your business.

From April 2016 the way in which HMRC tax dividends will change. At the moment anybody receiving dividends could receive up to £31,865, essentially tax-free (not including corporation tax). HMRC’s planned changes will change the thresholds at which dividends are taxed by removing their antiquated “Notional Tax Credit”.

HMRC have introduced a £5,000 tax free Dividend allowance after which there are new thresholds that your dividends will be taxed, measured on your personal income. These are:

 

Band

Personal Income

Dividend Tax

 

Personal Allowance

< £11,000 Per Annum

0%

Basic Rate Band

   £11,001 - £32,000 Per Annum

7.5%

Higher Rate Band

   £32,001 - £43,000 Per Annum

32.5%

Additional Rate Band

> £43,001 Per Annum

38.1%

Once your salary has been accounted for, and your initial £5,000 Dividend allowance, your dividend tax will be applied dependant on which band you fall into.

 

What does this mean to you?

Our Directors guide for 2016 states that the most profitable salary to take would be £8,060 per year (£155 per week). In addition to this any profits made by the business, after corporation tax is paid, would be payable via dividends. Should your business make £30,000 p.a profit, here’s an analysis of how the changes might affect you:

 

2015/2016                                                 

£8,060 – Directors Salary = £0 Tax & NI

£30,000 – Corporation tax (£6,000) = £24,000

£24,000 Dividends = £0 Dividend Tax

Total income = £32,060

Total Tax Due = £6,000

2016/2017

£8,060 – Directors Salary = £0 Tax & NI

£30,000 – Corporation tax (£6,000) = £24,000

£24,000 Dividends = £1204.50 Dividend Tax      (£5,000 dividend allowance) & £2940 (Personal allowance remaining) tax free +  £16,060 @ 7.5%

Total Income = £30,855.50

Total Tax Due = £7204.50

 

As you can see from the above example the new changes generally have a negative impact on small to medium sized companies. We are continuing to work hard to develop effect methods to combat this legislation but, as always, we will analyse accounts on an individual basis and confer with you should we recognise a potential tax-saving avenue.

Tax planning is an essential part of any business and as such I recommend that if you need any further advice, please give the office a call on 01785 748740 or click the button below. 

 

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