Submitted by Sestini & Co
| on Tue, 11/03/2015 - 8:33 | In Budget
, Corporation Tax
Since they were mooted in the summer we’ve seen a backlash against the new dividend tax rules from small business owners across the country. The Government estimates it could raise £6.8bn this parliament and the Institute for Fiscal Studies estimates that 700,000 taxpayers will experience a tax rise, the FT reports.
Over 30,000 people have already signed the petition requesting that the Government reconsider this new tax. Over 10,000 responses ensures a reply from Government and over 100,000 means that it will be considered for debate in Parliament.
The Government claims “lowering the Corporation Tax rate without action elsewhere increases incentives for individuals to set up a company and pay themselves through dividends to reduce their tax bill (also known as tax motivated incorporation)”.
If you’re considering incorporation and have concerns about ‘tax motivated incorporation’, contact us and we at Sestini & Co will be happy to discuss it with you.
What will the changes cost you?
Our earlier blog looked at what this change in taxation would cost small business owners – and how it will mean small business owners could pay £1,500 a year upwards in additional tax on dividends.
Higher rate tax earners with up to £5,000 or less in dividend income, however, currently pay 25% on their basic rate dividends and they could have their tax reduced under the new scheme.
Corporation Tax changes
The situation is, however, more complex as the Government is also changing the Corporation Tax rates from 20%:
So a business with a £10,000 corporation tax bill would see this reduced to £9,500 in 2017 and to £9,000 by 2020. Despite the reduction in corporation tax rates, there is likely to be a net overall increase in taxation for the small business owner who pays themselves largely via dividends.
NIC employer allowance alterations
National Insurance Contribution rules are changing from 2016 too; the employment allowance is increasing from £2,000 to £3,000 – and being abolished altogether for firms with a single employee.
Make the most of new Child Benefit rules
It is also worth considering the change to the Child Benefit rules. You can now earn up to £42,000 in dividends on top of a salary of £8,000 and still receive full Child Benefit, so it may be worth some people choosing to opt in to Child Benefit.
If you’d like to be able to check your tax position or to find out whether you should consider altering the way you take your remuneration, or if you’re considering incorporation, call us on 01761 241 861 or email us today. We will be pleased to advise you or to invite you into our offices in Paulton, near Bristol and Bath, for a consultation.