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Dividend tax update: New advice on nil-rate allowance

13th Aug 2015
Tax Writer Taxwriter Ltd
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Since the Summer Budget, the topic dominating professional discussions on AccountingWEB and elsewhere has been the Chancellor’s proposed new tax on company dividends.

As a reminder, the Finance Bill 2016 will abolish the 10% tax credit on dividend income, which will cease to be grossed up in personal tax computations from 6 April 2016. In its place will be a £5,000 dividend tax allowance.

Until now we had no details about how this dividend tax allowance will fit within the structure of personal allowances and tax rates. The ICAEW Tax Faculty has been working with the Treasury to produce some guidance which was released on 17 August 2015.

Armed with an advance draft of the Treasury guidance Rebecca Benneyworth and Anita Monteith of the Tax Faculty explained how the new dividend tax rules will work and the implications for incorporation decisions in a free webinar.  

They revealed that the £5,000 dividend tax allowance is not an allowance. It’s a zero-rate of income tax applied to dividend income only, but it will apply to all taxpayers whatever their marginal tax rate.  

Dividends are currently taxed as the highest slice of income, so they are always subject to the taxpayer’s highest marginal tax rate. This will continue to apply, but the first £5,000 of that dividend income will be taxed at zero rate.

Dividends in excess of £5,000 will be taxed at:

  • 7.5% within the basic rate band
  • 32.5% within the higher rate band
  • 38.1% in the additional rate band.

Example

In 2016/17 Fred takes dividends of £50,000 from his own company, but no salary. The personal allowance is £11,000.

  Dividend   Tax payable
Dividend received £50,000   £
Personal allowance (11,000)    
  39,000    
Basic rate band : (32,000)    
Dividend ”allowance”   5,000 @0% 0
    27,000 @7.5% 2,025
Higher rate band: 7,000 7,000 @32.5% 2,275
Total tax payable:     4,300

Meanwhile, the March 2015 Budget announced that a personal savings allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers is due to apply from 6 April 2016. We understand this will be restricted to savings income only and will not apply to 45% taxpayers.  From the same date all interest paid by banks and building societies will be paid gross without tax deducted.

However, the legislation for the personal savings allowance was not included in the Summer Finance Bill. We will have to wait until the draft Finance Bill 2016 is published in late 2015 to pick over the bones of this new savings allowance, and the details of gross interest payments.    

The dividend tax proposals are likely to cause some problems for investors with significant dividend income, but it represent a bombshell for small company owner managers paying themselves low salaries and larger amounts of dividends. The amounts of tax payable are likely to increase significantly.

There are also implications for taxpayers whose dividend income pushes them just over the thresholds of £100,000 where personal allowance is withdrawn and £50,000 where child benefit is withdrawn. Those individuals may find they are able to keep more of their personal allowance or child benefit in 2016/17.

Accountants up and down the land have been running the numbers in their spreadsheets. As part of her Summer Budget impact report for AccountingWEB and TaxCalc, Rebecca Benneyworth devoted an entire section to incorporation advice.

However, Benneyworth’s analysis in this report was based on different assumptions about the dividend tax allowance. There is still more work to do to refine the incorporation formula figures in the light of the latest Treasury information and we will continue to post updates as they emerge.

Nevertheless by significantly reducing the advantages of taking profits out of a limited company as dividends, the measure will achieve the Chancellor’s intended strategy to suppress the volume of incorporations that have taken place over the past decade. 

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By mabzden
18th Sep 2015 16:44

Incorporation still attractive

Speaking as one of the accountants who's been running the numbers, it seems incorporation is still the way to go for one man bands.

For someone earning £100,000, with expenses of £10,000, my spreadsheet tells me their total tax bill is going to go up by around £3,200 as a result of the change. However they will still pay roughly £2,200 less working through a company versus working as a sole trader, and this relative saving will increase to £3,300 once the CT rate falls to 18%.

I would be interested to know if anyone has similar results...

Addendum:

My software provider has put a dividend tax calculator up on their website. The link is:

www.gbooks.co.uk/divtax

 

Thanks (3)
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By cereus77
17th Aug 2015 12:14

Incorporation still mandatory!

Speaking as an IT contractor I would point out to all the accountants here that for many contractors there is no option other than the limited company route since HRMC's efforts on the IR35 and successor front have had the (presumably unintended) consequence of making employment agencies refuse to deal with any contractor who doesn't have a limited company.  Since the agents have the market more or less sewn up, this means that the choice is either "limited company with small salary and dividends" or "limited company with salary and pay double NI".   Until the new "dividend tax is raised to the level where one is paying more than double NI I guess the best option will be the dividend route but already it's starting to look as though we are moving from a situation where there were benefits to being self employed to one where self employed individuals are penalised; one can only hope the rates rise to compensate.

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By Romanista
17th Aug 2015 12:38

IR35 consultation

There is a consultation in progress at present on IR35.  The government knows that it is ineffective and the consultation asks for thoughts on such things as why should workers who incorporate have to pay more tax than they would if employed and why shouldn't the person for whom the work is performed pay the employer's NIC.  Good questions. 

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By shoshana
17th Aug 2015 17:15

My calculation of tax savings

mabzden wrote:

Speaking as one of the accountants who's been running the numbers, it seems incorporation is still the way to go for one man bands.

For someone earning £100,000, with expenses of £10,000, my spreadsheet tells me their total tax bill is going to go up by around £3,200 as a result of the change. However they will still pay roughly £2,200 less working through a company versus working as a sole trader, and this relative saving will increase to £3,300 once the CT rate falls to 18%.

I would be interested to know if anyone has similar results...

 

At a pre-tax profit of £90,000 and a salary at an assumed NIC limit of £8,200 next year, I make the saving £1,077, increasing to £1,119 if employment allowance is available (in which case a personal allowance salary is preferable at this level of profit). This assumes the total amount of NIC will not change when Class 2 is merged into Class 4 - I also fear the Class 4 rate will increase to 12%.

Malcolm

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By mabzden
18th Aug 2015 12:03

Some further calcs

shoshana wrote:

At a pre-tax profit of £90,000 and a salary at an assumed NIC limit of £8,200 next year, I make the saving £1,077, increasing to £1,119 if employment allowance is available (in which case a personal allowance salary is preferable at this level of profit). This assumes the total amount of NIC will not change when Class 2 is merged into Class 4 - I also fear the Class 4 rate will increase to 12%.

Malcolm

Hi Malcolm, I did tinker with my spreadsheet to take into account that the £5K dividend allowance reduces the basic rate tax band by the same amount. As a result I reckon the year 1 impact is higher than my first estimate - around £4,500. Ouch!

I agree on the benefit versus self-employment. In year 1 I make the tax savings from incorporation to be around £1,000, although this increases to £2,000 when the CT rate falls to 18% (assuming nothing else changes over the next five years....).

Does anyone remember David Cameron's pledge not to increase income tax? Or did I dream it?

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By mraccountant83
18th Aug 2015 17:20

I get £3,325 increase in tax

I get £3,325 increase in tax (based on expenses/salary of £10k) and £72k of divs.

Ignored E'ees NICs on salary.

 

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By Vaughan Blake1
13th Aug 2015 15:43

Incorporation still attractive? Yeah but...

What about the extra admin/accountancy costs & hassle of a company?  Plus the big ones - the 'company' car & IR35!

Now that the grown ups have sussed this whole area (including the goodwill wizardry), I suspect that the dividend rates will go up as the CT rate falls.

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By mabzden
13th Aug 2015 16:23

Agreed

It's definitely less worthwhile than it used to be and makes you wonder whether it's worth the hassle. But if it gives you tax savings of £3K, plus lower Payments on Account, I can't see people shedding Ltd Companies on mass.

It does, of course, make it more worthwhile for everyone to ditch the hassle of self employment and get a job pushing paper around at a Local Authority, with paid holiday, sick pay and an outrageously high pension. But that's another story.

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By Scriptic
13th Aug 2015 17:08

Teacher

I'm beginning to think that Osborne has been taking lessons from Gordon Brown.

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By jon_griffey
13th Aug 2015 17:16

Unforeseen consequences...

A few other angles I thought of...

1. What happens to gift aid? If you get say a pensioner with £10K of pension and £5K of dividend income, they will not be able to gift aid.

2. Does this dividend tax extend to foreign dividends? If not then it would seem easy to run a coach and horses through this.

3. Will be see new investment products launched whereby the first £5K of interest will be turned into dividend?

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By C T Edwards
17th Aug 2015 12:01

DIVIDEND TAX & UNFORESEEN CONSEQUENCES

Re 1 What happens to gift aid.

The first £5k of dividend is not exempt from tax, it is taxed at zero rate - so surely this should not affect gift aid in this scenario.

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Scooby
By gainsborough
08th Mar 2016 14:41

Gift aid

I think it would effect gift aid.

In the scenario mentioned by Jon (pension £10,000, dividends £5,000), there would be zero tax liability.  Therefore, if the pensioner did make gift aid contributions there would be a retained tax charge equal to the basic rate tax the charity reclaims on the gift.

We would need to start advising such clients not to tick the gift aid box.

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Stepurhan
By stepurhan
13th Aug 2015 17:26

Guidance?

How can there be guidance if there is no published legislation? Given the poor history of HMRC's guidance not adhering to statute, this is hardly satisfactory.

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By Duhamel
13th Aug 2015 18:26

Treasury

stepurhan wrote:

How can there be guidance if there is no published legislation? Given the poor history of HMRC's guidance not adhering to statute, this is hardly satisfactory.

I take your point but the article refers to the Treasury not HMRC. Maybe more reliance can be placed on it, maybe not.

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Stepurhan
By stepurhan
14th Aug 2015 09:35

Similar source

Duhamel wrote:
stepurhan wrote:

How can there be guidance if there is no published legislation? Given the poor history of HMRC's guidance not adhering to statute, this is hardly satisfactory.

I take your point but the article refers to the Treasury not HMRC. Maybe more reliance can be placed on it, maybe not.
Whilst I appreciate the difference, the two are so closely aligned that I have trouble believing that it makes a significant difference.

Of course, until the legislation the guidance is based on is published, it will be impossible to tell whether the guidance is any good or not. Releasing guidance BEFORE legislation just makes no sense to me. Unless they are not going to bother with legislation and just make HMRC/Treasury interpretation law in future.

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Red Leader
By Red Leader
14th Aug 2015 10:38

more or less?

Based on the interpretation outlined in this article, what happens in the following in 2016/17?

Taxpayer A: employment income £80,000.

Taxpayer B: employment income £80,000 + dividends £5,000.

Is it:

1) tax bills identical, or

2) does B pay an extra £5,000 x 32.5%? or

3) is the extra that B pays some other amount?

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By shoshana
17th Aug 2015 17:39

B pays an extra £5,000 @ 40%

Red Leader wrote:

Based on the interpretation outlined in this article, what happens in the following in 2016/17?

Taxpayer A: employment income £80,000.

Taxpayer B: employment income £80,000 + dividends £5,000.

Is it:

1) tax bills identical, or

2) does B pay an extra £5,000 x 32.5%? or

3) is the extra that B pays some other amount?

@redleader

B pays an extra £5,000 @ 40% i.e. £2,000. The dividend 'allowance' means that the dividends themselves are not taxed, but they use up the nil rate band, leaving £5,000 more salary to be taxed in the higher rate band of 40%. The 32.5% rate can only apply to dividends and they are covered by the dividend allowance in your example.

HTH

Malcolm

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By johnjenkins
14th Aug 2015 11:07

The bills are

identical because the first £5k of dividend is zero rated regardless of other income.

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By JimH
14th Aug 2015 20:45

And if ...
And if, as Rebecca suggested possible, Class 4 NIC is hiked to something like 12% to replace Class 2 NIC, the gap widen in favour of incorporation again. So many unknowns ...

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By h99
15th Aug 2015 02:33

Company Calculations from ICAEW Webinar

Has anyone noticed a difference of £254 when calculating figures for the Company (Corporation Tax + Dividends) for 2015/16, from the ICAEW Webinar (page 9 from the downloadable PDF), or is it just me?

This is for profits of £50,000 - £100,000.  The difference is due to the dividends using up the remainder of the personal allowance (£2,540) x the dividend tax credit, but this doesn't seem to have been taken into account in the webinar calculations on page 9.  Apologies for formatting!

                                                    £

Profit Before Tax and Salary        50,000

Salary                                      (  8,060)

Profit Before Tax                       41,940

Corporation Tax                        (8,388)

Profit After Tax                         33,552

Dividends                                (33,552)

Retained Profits                          0

 

Salary                                          8,060

Dividend Income (Grossed up):      37,280

(33,552 + 3,728)

Personal Allowance                    (10,600)

                                                 34,740

Tax on Dividends:

Basic rate: 31,785 @ 10%           3,179

Higher rate: 2,955 @ 32.5%          960

                                                 4,139

Dividend tax credit                     (3,728)

Corporation Tax                          8,388

                                                 8,799

 

In the webinar the tax on dividends seems to have been worked out as follows:

Basic rate: 34,325 @ 10%           3,433

(42,385 - 8,060)

Higher rate: 2,955 @ 32.5%          960

                                                 4,393

Dividend tax credit                     (3,728)

Corporation Tax                          8,388

                                                9,053

 

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By nogammonsinanundoubledgame
17th Aug 2015 07:54

Whatever the marginal benefits of one route over the other ...

... all of this is NOT going to prevent the major contractors effectively forcing one man band consultants into incorporation as a condition of their being offered work, simply so as to shift the compliance risks of employment status from the main contractor to the intermediary.

With kind regards

Clint Westwood

 

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Tony Margaritelli, ICPA Chairman
By Tony Margaritelli
17th Aug 2015 08:15

Totally correct

Clive's comments regarding engagers only offering work to Limited Companies is totally correct

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By cne333
17th Aug 2015 11:49

Don't forget the value of "CHOICE"

Don't forget the value of being able to choose when to draw money out our your limited company. Not everyone will need to take out every penny possible every single year so they can get a degree of control over when they want to subject their income to dividend tax.

Sole traders / partnerships get no such luxury.

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By laurenceexigent
17th Aug 2015 12:29

Limited Liability!

As a non accountant, of course I'm disappointed that I'm going to have to pay more tax on Divi's, but there is an overwhelming reason to incorporate which has nothing to do with money and that's Limited Liability. An unincorporated person puts all his accumulated wealth and assets at risk. Having a limited company gives you significant protection.

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By NeilW
17th Aug 2015 12:39

It's important to remember that limited liability is there to protect third party shareholders from liability beyond the value of their shares. 

Owner shareholders - particularly those who are directors and workers are less likely to be protected by the limited liability system. 

Don't rely on it. Get insurance. 

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By ver1tate
19th Aug 2015 20:39

Limited liability

Technically this is so only if you have not been found guilty of malfeasance. A one or two man limited company will have difficulty getting credit without  entering personal guarantees.

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By ver1tate
26th Aug 2015 20:03

Limited Liability!

Ask a bank for a loan, or credit of any kind. As a one man limited company, banks will not lend to the company without your personal assets being put forward as security. You may strike it a bit luckier with credit from other companies, as all companies do not always carry out due diligence to verify the fact that a limited company is really a one man band. Then you have the CA to contend with, malfeasance, additional filing and so on. Sorry, but life is not a bed of roses.

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By Ian McTernan CTA
17th Aug 2015 12:39

Some civil servants..

Some civil servants just don't seem to like people who work in the private sector, and really dislike anyone who works very long hours for unpredictable amounts of money if that amount of money is more than their gold plated pensionable salary on which their employer pays NIC on and in return grants huge amounts of leave, flexible working, the opportunity to be off sick for months with 'stress' without going bust, etc.

This change and the changes to interest (an actual payment!) so that people with rental income on several properties suddenly make huge taxable profits despite not making any profit at all seem to come straight out of the 'politics of envy' that I thought I voted to keep out....

One day we might get some civil servants that recognise the huge effort and stress and strain it is to set up and run a business and design a tax system that rewards rather than tries to penalise the wealth creators.

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By pstrangward
17th Aug 2015 12:50

How will non-resident companies be taxed?

Is there any indication yet of how a foreign company receiving dividends from a UK company will be taxed?

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By norstar
17th Aug 2015 12:51

Use rent?

In some cases, I can see a value to a company paying a higher license fee to the director for use of home working.

Outside london, you can rent a desk for £300-£400 a month, so if the employer's NI allowance is not available, the impact can be mitigated by paying a director £8000 salary say, £4000 license fee for use of home as office, and the rest dividends.

No loss of CGT allowance as the area isn't exclusively for business use, 20% Personal tax on just £1400 but 20% CT saving on £4k, and £300 saved in Dividend tax.

Just a thought and welcome any comments.

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By Philip J Redhead
17th Aug 2015 12:56

Dividend tax
If you are a non resident receiving uk dividends, under the old regime the notional tax deduction covered all uk tax on the dividend, does anyone know what will happen with non residents when no notional tax is applied to the dividend. Will this mean that non resident will now have a uk tax liability under the new rules.

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By Dowland
17th Aug 2015 13:11

And what about Trusts?

How can we be issuing draft guidance without the underlying legislation?  Why was the legilslation for this idea not included in he Finance Bill?  Also, how does the new system apply to Trusts or Estates?  Does anyone have any detail on that?

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By Ermintrude
17th Aug 2015 13:16

Just following

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By Robert Hurn
17th Aug 2015 13:31

Tax Vouchers

Will dividend tax vouchers show a tax credit of 2.5% from April or will the tax credit disappear altogether?

 

 

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By Ajtms
17th Aug 2015 13:54

Also concerned about Trusts

I share the question raised by Downland, does anybody know how dividends in both discretionary trusts and interest in possession trusts are to be taxed?

In answer to Bobhurn there will be no tax credit attached to the dividend 

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By Julian Stafford
17th Aug 2015 14:28

The bigger picture

In all this detail, let us not lose sight of a number of important principles:

1. In a developed democracy, it should be up to the person concerned whether they forego the security of employment for self-employment and the flexibility it brings. Tax should not be a factor in this decision.

2. Unification of tax and NI would make these new rules unnecessary.

3. When a company pays a dividend out of after-tax income it is only logical to allow a credit at the approximate rate of CT paid.

So the answer is to unify tax/NIC, bring back the tax credit on dividends at 20%, alter the tax and employment law rules to allow people to elect for employed or self-employed status and sort out the extremely silly and complicated rules on travel so that, as a minimum, they are the same for the employed and the self-employed. You could then scrap IR35 and the new dividend rules as well as all the NI legislation. A win-win nest-ce pas?

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By Romanista
17th Aug 2015 15:52

bigger and brighter

Yes it seems so obvious that we can only wonder why it was not adopted when the OTS suggested it.  Perhaps undue influence from big business?

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By johnboy1066
17th Aug 2015 14:48

Dividends

What happens if you get £10k salary and £10 dividends. Gross £20k. PA £11000 leaving £9k taxable . Is it all divi which would be preferable or part salary. Is there an order of set off of the PA

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By shoshana
17th Aug 2015 16:53

PA allocated against general income first

johnboy1066 wrote:

What happens if you get £10k salary and £10 dividends. Gross £20k. PA £11000 leaving £9k taxable . Is it all divi which would be preferable or part salary. Is there an order of set off of the PA

Personal allowances are set against general income (including salary) first, then savings (interest) income and finally dividend income.

HTH

Malcolm

 

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By Comptable
17th Aug 2015 15:45

how and why did we get here?

Once upon a time nearly all workers were employed, with a smallish proportion being self employed. It was when big corporations started to treat individuals - frequently IT people - as contractors and not as employees in order to avoid NIC and more importantly employment law responsibilities that significant numbers of individuals started to work through personal companies. It didn't take long for accountants and others to realise that there were significant tax advantages to be had.

The driver was not initially tax savings but employment law avoidance by large corporations. And since then governments have tried to stop what they claim is abuse by introducing various bits of sticking plaster. And none of them have worked. No surprise there.

A huge cultural shift has taken place in how people work and the tax system has been tweaked here and there again and again as a result. It will never be satisfactorily resolved without a root and branch restructuring of the tax system so that it is designed to operate in this century.

There is no way that a system that has been built piecemeal over 200 or whatever years is going to be sensible and satisfactory, and work properly.

But no government will try and tackle this; even a Labour government with Balls would not have done so and Gideon has no interest in this sort of thing, It is just too long term for any of them

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Time for change
By Time for change
17th Aug 2015 16:37

Comptable brings a logical approach

to this topic.

Whilst I wholeheartedly agree that, until and unless there is a root and branch reform of the taxation system, we will never really know, or understand what is and what isn't avoidance, in fundamental terms.. The only thing we really understand and all easily acknowledge is evasion.

Accepting that we are no longer a nation of shopkeepers, could it be that the industry of financial services, is now the driving force behind all of this?

The question and security of limited liability status, is often overlooked in these discussions and, furthermore, as mentioned earlier, the "mechanism" of the limited company gives the useful tool of preserving or deferring the draw-down of income to a time which suits the individual, or individuals concerned. Again, simple tax planning, or a journey towards avoidance?

The fact that some of the answers to the Summer Budget, which was delivered on 8th July, has taken over a month to surface, simply shows that the present arrangements cannot continue. And, they call it "self-assessment"!

 

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By Rebecca Cave
17th Aug 2015 16:51

HMRC factsheet now released on dividend allowance

See: https://www.gov.uk/government/publications/dividend-allowance-factsheet

It is not that helpful. We still don't know how the dividend allowance affects:

non-resident individual taxpayers; ortrusts which receive dividend income; orhow the dividend tax will collected through PAYE in 2016/17 - if at all.

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By Ian Lawrence
17th Aug 2015 17:53

Is this correct?

I don't understand this.  If the dividend is still the top slice then how can they use up the nil rate band?  I thought the tax bill would be the same.  Have I misunderstood? 

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By shoshana
17th Aug 2015 18:43

Nil rate band?

Ian Lawrence wrote:

I don't understand this.  If the dividend is still the top slice then how can they use up the nil rate band?  I thought the tax bill would be the same.  Have I misunderstood? 

Whilst the first £5,000 is covered by the allowance, the latest guidance from HM Treasury is that to the extent the allowance is used, it reduces the basic rate (and I presume the higher rate) band by that amount.

The Lord giveth, and the Lord taketh away......

Malcolm

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By Ian Lawrence
18th Aug 2015 10:48

40% on dividends

Malcom - in effect then a higher rate tax payer will suffer 40% tax on any additional dividend income even if the dividend is below £5k.  Is that really correct?

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By shoshana
18th Aug 2015 11:32

That is my understanding

Ian Lawrence wrote:

Malcom - in effect then a higher rate tax payer will suffer 40% tax on any additional dividend income even if the dividend is below £5k.  Is that really correct?

Ian, that is my understanding from Rebecca after receiving the draft guidance note from HM Treasury. As Rebecca pointed out, you need to think of the dividend allowance as a part of the basic rate band that has a zero tax rate. So any dividends received will reduce the basic rate band for other income that needs to be taxed.

Malcolm

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By Ian Lawrence
18th Aug 2015 17:07

Apparantly not?

Hi Malcolm

I have had some examples from Rebecca on the ICAEW email and she says that the dividend allowance does not affect the basic rate band for other income.  So a higher rate taxpayer (in the example in this thread) receiving dividends of say £9k would be better off under the new rules by £1625 because of the £5k allowance.  Do you agree?

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By shoshana
18th Aug 2015 17:38

It isnt abundantly clear but for now I am minded to agree

Ian Lawrence wrote:

Hi Malcolm

I have had some examples from Rebecca on the ICAEW email and she says that the dividend allowance does not affect the basic rate band for other income.  So a higher rate taxpayer (in the example in this thread) receiving dividends of say £9k would be better off under the new rules by £1625 because of the £5k allowance.  Do you agree?

HMRC has published a Dividend Allowance Factsheet on the gov.uk web site https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet. It doesn't actually tackle the issue you have raised in its example though it boldly says "This simpler system will mean that only those with significant dividend income will pay more tax." Simpler? Je despair.

It does say "Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance."

I am guessing that because dividends are taxed after all other income (with the exception of the annual allowance charge which is taxed as the top slice of income), the regular basic rate band is dealt with in the other income before we even think of taxing dividends so with a large salary the basic rate band would be available in full.

My examples have been focused on minimum salary/maximum dividend strategies of OMBs with little other income.

Because we still don't have draft legislation (and won't have until the Autumn Statement I guess), any advice to clients will need to be heavily caveated.

[Edit] Example 6 in the factsheet:

“I have a non-dividend income of £40,000, and receive dividends of £9,000 outside of an ISA”

Of the £40,000 non-dividend income, £11,000 is covered by the Personal Allowance, leaving £29,000 to be taxed at basic rate.

This leaves £3,000 of income that can be earned within the basic rate limit before the higher rate threshold is crossed. The Dividend Allowance covers this £3,000 first, leaving £2,000 of Allowance to use in the higher rate band. All of this £5,000 dividend income is therefore covered by the Allowance and is not subject to tax.

The remaining £4,000 of dividends are all taxed at higher rate (32.5%).

 

Time to lay down in a dark room again....

Malcolm

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By Malmsmead
17th Aug 2015 19:08

The new dividend allowance

If the 'allowance' is achieved by charging £5,000 of dividends at 0% this means that all dividends (albeit no longer 10/9ths thereof) will be part of the 'adjusted income' and 'threshold income' in calculating the annual pension allowance, the income relevant to determining the availability of the personal allowance and the high income child benefit charge.

It will also in some cases result in, or increase, a liability under S.424 ITA 2007 on gift aid donations.

 

The same comments are likely to apply to the £1,000/£500 savings allowance for interest.

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By AndrewV12
17th Aug 2015 19:53

dear George Osborne....

Why not leave everything just the way it was, Gordon Brown was a tinkerer for the sake of it, and so are you.

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