The new dividend tax has arrived. As from 6 April individuals can earn up to £5,000 in dividends without any income tax charge, but any amounts received above this level will be taxed at 7.5%, 32.5% and 38.1% depending on the tax band.
This has left many practitioners wondering how these new rules will affect their small company clients, and whether it still makes sense to incorporate. This article looks at both questions for businesses with various levels of profit.
So how will the dividend tax affect clients already running one-man band companies?
The table below shows the total tax bill (i.e. both corporation and income tax combined) for one-person companies with profits of £50,000, £100,000 and £150,000. All our calculations assume that business owners draw salaries from this profit equal to the NIC primary threshold (£8,060 for both years), and that all post-tax profits are paid as dividends. And all the resulting tax figures are rounded to the nearest £100.
Total tax bills for a one-person company...
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Founder of Aegia Cloud Systems (Gbooks), the leading cloud-based tax and accounts system.