Head of Insight AccountingWEB
Share this content

Dividends tax: Incorporation under attack

9th Jul 2015

During his Summer Budget speech, George Osborne set out the thinking behind a new dividend tax credit that reduces the amount of tax paid on income from shares.

The government was unable to continue with its crusade to cut corporation tax rates below 18% while there are such strong tax incentives for people to self-incorporate, he explained.

“The dividend tax system was designed partly to offset double taxation on profits. But the system has not changed despite sharp reductions in corporation tax. Lower rates are creating rapidly growing opportunities for tax planning.”

To alter that equation, he set out plans to reform the taxation of dividends by replacing the current lower tax rates applicable to dividend income with a new £5,000 tax-free dividend allowance for all taxpayers, accompanied by increased tax rates on dividend income.

The rates of dividend tax will be set at 7.5%, 32.5% and 38.1%, equivalent to an increase of 7.5% where dividend income exceeds £5,000.

According to the Chancellor, “Those who either pay themselves in dividends or have large shareholdings worth typically over £140,000 will pay more tax; 85% of those who receive dividends will see no change or be better off.”

Almost immediately after the Chancellor sat down, AccountingWEB members were scratching their heads. “What are people’s views on the new 7.5% dividend tax?,” asked darrellwilliams in Any Answers. “Sounds like really bad news for most of the companies who I act for, as well as holders of quoted companies.”

Detail was hard to find, but bobbuilderlink pointed to page 44 of the Budget Reportwhich explained: “These changes will also start to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities. This will reduce the cost to the Exchequer of future tax motivated incorporation (TMI) by £500m a year from 2019.”

We need to crunch numbers commented AccountingWEB member youngloch...

Please Login or Register to read the full article

The full article is available to registered AccountingWEB.co.uk members only. To read the rest of this article you’ll need to login or register. Registration is FREE and allows you to view all content, ask questions, comment and much more.

Replies (94)

Please login or register to join the discussion.

avatar
By Dib
09th Jul 2015 13:45

Yes

@Thatsnumber...

Yes, you are only looking at the small proportion of people who run one-man or other small companies.  The majority of people are employed (in larger companies) or retired and their dividends will come from small investment portfolios.  If they receive less than £5k in dividends then they will be better off.

Also, some entities such as companies and pension funds aren't normally taxed on dividend income.  They might be part of the 85% too.

Thanks (2)
avatar
By bainbridgelewis
09th Jul 2015 14:00

@Dib I wonder where your stats for 'small proportion of people who run one-man or other small companies' come from? All of my 100+ clients fall into that category and I'm sure there a lots of other accountants who have many clients in this category. In fact the 2014 stats show there were over 5 million micro businesses in the UK employing less than 10 people.

Thanks (2)
avatar
By hughjoyce
09th Jul 2015 14:09

Add to this woe

the other issue that one person directors will no longer be eligible for employment allowance meaning they will have to decrease their pay down to the NI limit and have the top up to the tax threshold as dividends as the EES plus ERS would make it non viable against the CT offset.

Thanks (1)
By nodhedz
09th Jul 2015 15:41

I didn't see this?

thanks hughjoyce - was this in the budget? I didn't see this point?

re your point: "the other issue that one person directors will no longer be eligible for employment allowance"

Thanks (0)
avatar
By hughjoyce
09th Jul 2015 15:43

Saw it first on here - just makes it worse

nodhedz wrote:

thanks hughjoyce - was this in the budget? I didn't see this point?

re your point: "the other issue that one person directors will no longer be eligible for employment allowance"

 

I saw it first on here. There is another thread on here about it.

 

Employment allowance and sole director payrollPosted by SteLacca PM | on Wed, 08/07/2015 - 16:15  1635  16 comments | report printMore social links Linkedin Google+

In the budget, sole director companies will lose the benefit of the employment allowance.

Does anyone think that Osborne perhaps meant director only companies? Otherwise, husband/wife companies will gain a tax advantage over single director.

Thanks (1)
Hallerud at Easter
By DJKL
09th Jul 2015 15:51

Conservative values

hughjoyce wrote:

nodhedz wrote:

thanks hughjoyce - was this in the budget? I didn't see this point?

re your point: "the other issue that one person directors will no longer be eligible for employment allowance"

 

I saw it first on here. There is another thread on here about it.

 

Employment allowance and sole director payrollPosted by SteLacca PM | on Wed, 08/07/2015 - 16:15  1635  16 comments | report printMore social links Linkedin Google+

In the budget, sole director companies will lose the benefit of the employment allowance.

Does anyone think that Osborne perhaps meant director only companies? Otherwise, husband/wife companies will gain a tax advantage over single director.

Maybe part of their drive to uphold family values (or a resumed attack on single parents(and those unmarried))

Thanks (1)
avatar
By Gone Sailing
09th Jul 2015 14:57

Incorporation - Other Advantages

When is HMG (of whatever colour) going to get it into their heads of the massive non-tax advantages (to HMG) of self employed people incorporating?

Thanks (0)
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
09th Jul 2015 15:03

@rboggon & @nodhedz

I can partially answer both of your comments. Rebecca Benneyworth is one of many accountants wrestling with the incorporation logic for rental property owners and set down some of her classic examples in the article, Osborne's reforms send property into spin.

When I talked to her last on Wednesday night, Rebecca was knee-deep in another spreadsheet, running the numbers on the dividends tax allowance. We're hoping the see the fruits of her labours over the weekend, but if you want to ensure you get the full sweep of her workings, I'd suggest signing up for her Budget impact report, which we'll be sending out as soon as it's complete.

Thanks (2)
avatar
By norstar
09th Jul 2015 15:10

Phoenixing

I can see this driving a lot of people to phoenixing.

 

Think about it - trade for a year, take your small salary and dividends up to £30k taking the hit of 7.5%, pay the CT arising and make sure retained profits are £25k or less, distribute at 10% after annual CGT allowance, start again.

Or other contractors or the like may begin to look at claiming tax credits based on the small salary and taking no dividend to boost it, looking to obtain the distribution under 10% CGT at a later date - not sure about the ethics of that however as I wouldn't advocate it.

Overall, this sort of change means well, but the wide ranging and ill targeted effect of it coupled with short notice is going to cause a few problems.

Thanks (1)
avatar
By normanx
09th Jul 2015 15:10

PA

In the previous examples using salary of £8,000, surely that leaves £3,000 of PA to set against dividends - saving £225 of the tax calculated on dividends?

Thanks (0)
avatar
By hughjoyce
09th Jul 2015 15:20

Mp

I have just written to my MP who is a conservative and runs a business club for people under 30. I have asked how he can convince those members that the conservative party is for the small business while bring in those policies. Certainly in this part of the South Coast (a working class city) our average client will be the exact person effective by the dividend and employment allowance change. Whilst we have one of the poorest boroughs in England (officially) our clients never qualify for any of the regional help. (Like the previous employers NI scheme from 3 years ago).

 

If he replies I will let you know their thinking. I have suggested he joins the forum to express his views and those of his party.

Thanks (3)
avatar
By johnjenkins
09th Jul 2015 15:35

@norstar

Isn't that good "tax planning"? Or would it come under aggressive "tax avoidance".

It will be interesting to see what the "cleverdicky" boys come up with to combat this.

Thanks (0)
avatar
By norstar
09th Jul 2015 15:52

Who knows?

Let's ask HMRC for an opinion!

Thanks (1)
avatar
By hughjoyce
09th Jul 2015 15:59

Norstar

norstar wrote:

Let's ask HMRC for an opinion!

 

Don't forget to do that we would have to be on hold for an hour, only to be cut off or send in a letter that would be lost 3 times then eventually responded to in their 3 month window.

Thanks (2)
Morph
By kevinringer
09th Jul 2015 16:07

This is what HMRC refer to as "digital by default"

hughjoyce wrote:

norstar wrote:

Let's ask HMRC for an opinion!

 

Don't forget to do that we would have to be on hold for an hour, only to be cut off or send in a letter that would be lost 3 times then eventually responded to in their 3 month window.

Thanks (0)
avatar
By hughjoyce
09th Jul 2015 16:17

oh how I laughed

kevinringer wrote:

hughjoyce wrote:

norstar wrote:

Let's ask HMRC for an opinion!

 

Don't forget to do that we would have to be on hold for an hour, only to be cut off or send in a letter that would be lost 3 times then eventually responded to in their 3 month window.

 

Digital by default.....not holding my breath on that. Until then we will continue to all pretend its 1940.

Thanks (0)
avatar
By hughjoyce
09th Jul 2015 15:58

jest

I am assuming that is sarcasm meant in jest. I am sure most people can find someone to have their name on the payroll if it means keeping the allowance but I am assuming there will be some sort of caveat like they need to be being paid enough to fall into NIC.

Thanks (0)
avatar
By youngloch
09th Jul 2015 16:16

Local councillor

Ironically a client who is a senior local Conservative councillor dropped his records in an hour ago and knocked on my door to see what I thought of the budget "it was alright wasn't it!" he said....

"I thought it was the worst one I remember in 25 years of being in the profession!" I replied.

He had no idea of the impact on small businesses so I quickly educated him.

"You've taken the smile off my face now" he said

"Join the club" I replied

Thanks (3)
avatar
By vstrad
09th Jul 2015 18:19

Are you suggesting ...

Are you suggesting, youngloch, that your client was only interested in the effect of the budget on himself rather than its impact on the country as a whole?

Thanks (0)
avatar
By youngloch
09th Jul 2015 18:50

The local Conservative councillor's view was....

It seemed to me that he was pro everything in the budget until he realised that small businesses were feeling the pain and that therefore perhaps traditional Conservative voters would not be rushing to pat him and his colleagues on the back. He seemed genuinely surprised that small business owners would be unhappy until I explained the implications to him.

I suppose he's going to be mindful that he has his seat on the council to defend at some stage. 

He does not have a small company and is a full time PAYE councillor with a P60, P11D and some pension and investment income. For him therefore the budget left him unscathed and actually a little better off.

Ultimately I suppose we have to look at the "we're all in this together" view and accept that the salary / dividend strategy has worked incredibly well for a long time but that it will no longer be quite as good.

Thanks (0)
By Glenn Martin
09th Jul 2015 18:46

Well it looks like
I picked the wrong time to develop a contractors only website, due to launch at the end of the month.

This whole thing is a massive kick in the teeth to the small company contractor. Do they realise the significant contribution these guys have made in bringing the country into recovery. The fact they don't get holiday, sick pay etc allows projects to be brought in on time and budget. Now there is no real benefit to them if they are getting taxed on par with an employee yet missing out on the perks of employment.

The underlying problems this will cause will push prices and bank interest rates up causing the economy to falter. I'm all for people earning more money but the service sector in the north of England will be crippled by the increases to NLW

Thanks (0)
avatar
By hallsi
09th Jul 2015 20:36

According to BBC, most people better off...
 

What are the changes?

Under the new rules everyone will receive a £5,000 tax free allowance. Essentially, dividend payments of up to £5,000 a year will not be subject to tax.

But those who receive more than £5,000 in annual dividend payments will have to pay tax on that income. The amount of tax they pay on that income will continue to be decided by which of the three main tax bands they are in, but the amount of tax they pay has been altered.

The new tax bands look like this:

-  Basic rate taxpayers will pay 7.5% on their dividend income from shareholdings above £5,000 a year (less than the current system).

-  Higher rate taxpayers will pay 32.5% (the same).

  -  Additional (top) rate taxpayers will     pay 38.1% (1% point more).

Thanks (0)
Morph
By kevinringer
10th Jul 2015 09:53

Am I missing something?

hallsi wrote:

The new tax bands look like this:

-  Basic rate taxpayers will pay 7.5% on their dividend income from shareholdings above £5,000 a year (less than the current system).

Currently dividends are paid with a 10% tax credit which covers the basic rate taxpayer's tax liability so effective tax rate is 0%. According to https://www.gov.uk/government/uploads/system/uploads/attachment_data/fil... 2.57 the dividend tax credit will be abolished and basic rate taxpayers will pay 7% on dividends above £5000. That is more than what is paid at the moment so hallsi why do you say it is "less than the current system"?

Thanks (0)
avatar
By hallsi
09th Jul 2015 20:37

Is it confirmed that the Tax Credit is to be removed?

Thanks (0)
avatar
By Jon11
09th Jul 2015 21:54

BBC or not to be

The BBC reckons basic rate tax payers will be paying less than the current system -

http://www.bbc.co.uk/news/business-33457900

So it must be true ;)

In other news, contractors may not have security of income like employed people (risk) and they have to do all this accrual accounting nonsense plus PAYE plus VAT returns every year.  So they should be compensated over 'permies'.

 

Thanks (0)
avatar
By buttinski
10th Jul 2015 10:44

Presumably an unpopular question ...... but

Why should a business being operated through a limited company pay less tax than an identical business being run by a sole trader or partnership?

Ignoring arguments about costs of compliance and limited liability etc.

Thanks (0)
avatar
By The Black Knight
15th Jul 2015 11:40

Yes

buttinski wrote:

Why should a business being operated through a limited company pay less tax than an identical business being run by a sole trader or partnership?

Ignoring arguments about costs of compliance and limited liability etc.

You are quite right

The lower tax rates are an incentive for taking the risk and investing the capital in your own business. Should be no difference between.

The limited company still provides an unseen re-investment relief in that your funds are not depleted of additional tax before reinvestment in growth.

However:

It is also rather unfair and unsavoury behaviour to give incentives to enter then close the barn doors behind and lob in a hand grenade.

How can you ever trust these people again? and how does business move forward when its decisions (important ones) may be the wrong ones retrospectively at the whim of an intellectually challenged chancellor. Are we trying to create a climate of "what if " fears that stop business in its tracks? I assume so.

We need entreprenuers otherwise the whole lot comes crashing down that may be the intention and what has been agreed with the German Federal Republic of Europe.

We need out from these overlords. Vote UKIP the uk parliament is nothing more than a parish council populated by wide mouthed scottish frogs anyway.

I also fail to see how this is simpler either.

 

 

Thanks (0)
avatar
By Michael C Feltham
15th Jul 2015 12:36

For Over 30 Years........

The Black Knight wrote:

buttinski wrote:

Why should a business being operated through a limited company pay less tax than an identical business being run by a sole trader or partnership?

Ignoring arguments about costs of compliance and limited liability etc.

You are quite right

The lower tax rates are an incentive for taking the risk and investing the capital in your own business. Should be no difference between.

The limited company still provides an unseen re-investment relief in that your funds are not depleted of additional tax before reinvestment in growth.

However:

It is also rather unfair and unsavoury behaviour to give incentives to enter then close the barn doors behind and lob in a hand grenade.

How can you ever trust these people again? and how does business move forward when its decisions (important ones) may be the wrong ones retrospectively at the whim of an intellectually challenged chancellor. Are we trying to create a climate of "what if " fears that stop business in its tracks? I assume so.

We need entreprenuers otherwise the whole lot comes crashing down that may be the intention and what has been agreed with the German Federal Republic of Europe.

We need out from these overlords. Vote UKIP the uk parliament is nothing more than a parish council populated by wide mouthed scottish frogs anyway.

I also fail to see how this is simpler either.

BK: For more than 30 years I have beaten the drum reference SMEs and true, real Venture Capital!

The now defunct DTI didn't comprehend what the problems were: neither did any government ministers. Forsooth! I met with many!

What clowns like Dave and Twee Georgie fail to comprehend is the basic lessons and oak trees and little acorns.

HP, Sun, Apple, Microsoft, Adobe, Intel, Cisco Systems, Dell, JCB, Morris Motors, Jaguar,  ARM Holdings etc, grew from humble starts as SME microsize businesses.

Yet, precisely what has any politicians in recent (50 year spectrum) actually enacted which really benefits SMEs, encourages growth, nurtures this etc?

Not a lot in real terms of reference. Point of fact, succesive governments have passed legislation which cripples and hinders SMEs. Yet, SMEs (Pan-European statistics culled from a fully segmented market analysis I carried out some few years back with the core 12 EU member states as the reference point) prove main EU state SME's generate circa 49% of real economy GDP; create and provide circa 48% of employment.

 

 

Thanks (1)
avatar
By chatman
15th Jul 2015 13:07

UKIP's not the answer

The Black Knight wrote:
Vote UKIP the uk parliament is nothing more than a parish council populated by wide mouthed scottish frogs anyway.

There are several parties whose manifestos contain a commitment to holding a referendum on EU membership; the Green Party and No2EU for example. The problem with UKIP is that they want to sign up to TTIP and hand our sovereignty over to huge foreign corporations.

Thanks (0)
avatar
By doorsteps
10th Jul 2015 10:55

Time to admit

I hope the Government will now admit that IR35 has been a waste of time and resources with the tax yield that has been generated from it.

This dividend tax gives them the excuse now to put this farce to bed.

Thanks (0)
avatar
By darrenwilliams
10th Jul 2015 11:39

I would suggest

doorsteps wrote:

I hope the Government will now admit that IR35 has been a waste of time and resources with the tax yield that has been generated from it.

This dividend tax gives them the excuse now to put this farce to bed.

 

I would suggest you read the budget, as IR35 is going to be 'amended', so sadly you are probably incorrect, I assume this means easier to apply by HMRC to 'catch' more people/contracts.

Also you may wish to look at the new travel/subsistence rules as well.

Also the changes in employment allowance (which no doubt will change in coming budget to restrict it further)

Along with the dividend tax which should raise 2 billion! and the 7.5% I would guess is just the start......(of course this will go up when corporation tax rates drop, not that I have read anyone else saying this, but I would imagine is 100% certain!!!)

The budget is basically very bad news for most small owner managed Ltd companies and is getting far more complex to apply.

Thanks (0)
avatar
By youngloch
10th Jul 2015 13:11

My prediction is 7.5% will stick for 5 years

I cannot see the dividend tax going up further short term - this is a big hit in one go that is stinging because no one saw it coming!

A snap election right now would likely see small business shying away from the Conservatives so therefore I predict that politics will see a little bit of sweetening as we then get towards 2020 (a long way off though) and particularly if they can nail down IR35 so that only "proper" businesses remain.

Alas by 2020 we'll all be used to this and maybe then get excited that CT will drop to 18% because, once that is added in and the £1000 Employment Allowance extension from next year (possibly rising....)  then we'll find that, as a whole for a proper business, the initial pain has been watered down a bit and we will all be thinking of voting for Boris (seems like a nice guy who wouldn't want to squeeze us for more surely?)

Thanks (0)
avatar
By johnjenkins
13th Jul 2015 10:09

Reminds me

of second hand car salesmen. No matter how you juggle the figures the bottom line is still the same. Government want more money. They can only get it from the middle class. So we're stuck with whatever crap they come up with. Still we can all go to Greece for our hols.

Thanks (0)
avatar
By WaldoLydecker
13th Jul 2015 11:59

Retrospective taxation

There will be an element of retrospective taxation involved in this for many people.

Most worked examples assume that dividends are paid out in the same year they are earned. However there is often a time lag between a small business earning money and paying it out as dividends - either because funds need to be retained in the business for business purposes or because thrifty small business people will tend to dividend out the amounts they need to live rather than the maximum they can. That is particularly true if a dividend payment means an immediate tax hit and personal savings accounts are attracting negligible rates of income.  I have a number of small business clients with significant accumulated profits rolled up in their business and I am sure I am typical in that respect.

As I see it these clients now have the following options:

1. carry on as before and pay the 7.5% tax as dividends are paid out within the basic rate band in future.  Of course corporation tax at often higher historical rates has already been paid on this income.  Furthermore:

- Many people will have assumed that if any life event required a large payment from the company it could be made as necessary, at an effective rate of 25%.  Now they will suffer tax at a punitive 32.5% on income already subject to CT.

- Having seen this totally unexpected tax raid on what many will have looked on as their life-savings, many will be nervous of worse to come.  Will the 7.5% rate be increased?  Many will feel that they need to act now or be subject to risk of worse from a government they no longer trust.

2.  Pay out large dividends in the current tax year before the new rules take effect and at least get their earnings safely into their own hands. This will be a blow to many who had hoped to parcel out dividends within the basic rate in future.  An additional  problem is that clients who have accumulated profits earned in relatively modest amounts may be brought into "additional rate" on a one-off payment.  

3.  Liquidate their companies now and apply for Entrepreneur's Relief so they can distribute accumulated profits at 10%.  The difficulty here is that many are not yet ready to retire.  If they are to avoid Transactions in Securities issues they will not be able to continue operating their businesses through a company.  Many will not be keen to operate businesses through an unincorporated entity without the benefit of limited liability.   There will also be a nervousness that if Entrepreneurs Relief is perceived as a way of avoiding the new taxes it may be withdrawn in future - leading people to take advantage now rather than risk waiting.

One (I hope) unintended consequence of the Chancellor's new rules will therefore be that many people who otherwise might have continued working for several more years will now see retirement as a better option.

For as long as I can remember the Conservative party has been regarded as the party of small business.  The people who will be most hurt by this - hard-working, thrifty, small-business owners - were the bedrock of the party.  In advising clients accumulating money in their companies I have always warned that there was a risk that in future the rules might be changed to their disadvantage, but I could never have anticipated that a Conservative Chancellor would wreak this kind of havoc.  I can only assume that these measures have not been thought through properly, or that Mr Osborne thinks the small business sector is so dyed in the wool Tory that it will remain loyal no matter how hard he kicks it.

There are opportunities here for Boris and for UKIP methinks.

Thanks (0)
avatar
By buttinski
13th Jul 2015 12:54

An alternative view

Why should earnings be taxed as investment income?

Why should company owners pay less tax than sole traders and partners making the same 'business profit'?

How many people would work full time in a business, and take all the risk, for a salary of £8,000?

How many people would expect an annual dividend of £30,000 on their £1 share?

The whole arrangement has been legal tax avoidance.

I do not believe this is totally unexpected - an 'NI surcharge' (or equivalent) on owner managed company dividends has been spoken about for years.

Whilst not directly related to Class 4 NI (which is only another tax, anyway) this new treatment does restore some sort of balance (arguably not enough - so "yes" things may get 'worse').

Sole traders and partners pay their tax as they earn their profit, have the same problems as company owners, but do not have limited liability, and cannot shelter income for drawing in later years.

At the end of the day these dividends and capital distributions are earnings.

The only real surprise is that the Conservatives have done it rather than the successive Labour governments which allowed it to flourish.

Thanks (0)
avatar
By WaldoLydecker
13th Jul 2015 14:49

With respect, you miss my point.

I make no comment on the taxation of earnings going forward.  There are arguments for and against equalising tax treatment between the earnings of small businesses and employees.  But that is an entirely separate debate.  What I am concerned about - and I think my post was clear on this - is the retrospective element.

A newly elected Labour government might feel a top rate of tax at 60% was appropriate.  Many would disagree, but most people would accept that as a duly elected government it was within its rights to set tax rates. But let's say the same Labour government then said "the top rate of tax was unacceptably low under the previous government; we are going to apply a tax to claw back the underpayment of tax by high earners on earnings made under the previous regime". Most people would rightly think that an unwarranted abuse of power.  

The question of earnings v income is neither here nor there.  There is no settled agreement that they need to be taxed differently, or that one need be taxed at a higher or lower rate than the other.  These are political or philosophical questions and different governments have taken different views at different times.  It is certainly not part of my argument that investment income "ought" to be taxed at a lower rate than earned income.  My point is that changes ought not to have retrospective effect.

Nor does the phrase "legal tax avoidance" have much meaning in my view.  It is a long established principle that taxpayers are entitled to arrange their affairs to minimise the tax take within the law.  No-one was adopting any subterfuge.  The law operated as it did, and its consequences were clear enough.  Governments cannot have been unaware of those consequences. One can infer that they were happy as a matter of policy for people operating small businesses to be taxed in the way they were: in short, that provided they arranged their affairs in a particular way, lower rates of tax were to be available to small businessmen than employees.  

In fact there was plenty of rhetoric to support that inference. The rationale, initiated by the Tories but accepted by New Labour, was that lower rates of tax acted as incentives, and incentives afforded to the business community benefited the economy as a whole more than incentives offered to employees. That may or may not be true, but citizens who paid the tax the government deemed appropriate while that policy influenced the tax code ought not to be retrospectively subjected to higher rates of tax if a government with a different view is elected.

In addition to my point about retrospective taxation, I made a slightly tangential point about politics.  

The questions the Chancellor asks himself are, how can I raise the money I need:

- without, if possible, breaking clearly given promises

- while being consistent with the political philosophy of the party

-  while alienating as few potential Conservative voters as possible - in other words, while only hurting the people I can afford to hurt

If a Conservative chancellor has indeed decided that incentives given to small business are no more valuable than incentives given to employees, that is a very significant change in the philosophy of the party, and it one that will surprise and anger many of its traditional supporters.  Moreover, if the thrifty small business community are now numbered among the "people I can afford to hurt" by a Conservative chancellor we are looking at a very different sort of Conservative party. In addition of course they may feel that he is entitled to raise taxes on their future earnings but will be bitter that he is raising taxes on earnings in prior years.

I think he has miscalculated.  Osborne has leadership ambitions. The small business community is very well represented in the Constituency Associations of the Conservative party.  If I were Boris I'd be disassociating myself from this change in the dividend rules forthwith.  I think it may be fatal to Osborne's chances of being next PM.

 

 

 

 

Thanks (1)
avatar
By buttinski
13th Jul 2015 15:30

Apologies

My contribution was not intended to be a direct response to your piece.

I was merely suggesting that there is no basis for the company owner to expect his/her tax rates to be lower than those applying to the sole trader or partner.

 

 

 

Thanks (0)
avatar
By Michael C Feltham
14th Jul 2015 10:55

A week is a long time in politics!

I fear too many posters are loosing sight of a simple political reality.

Governments come and go. a few years post event, the new boys on the block have zero interest in legacy and what went before: rather, their perspective is narrow and concerned only with expedient solutions: or more appositely, what they believe are "Solutions"!

CGT is perhaps the very best exemplar. Harold Wilson introduced CGT on the stated grounds of preventing City wheeler dealers "Buying something one day and selling it the next morning for millions more than they had paid the day before! And paying no tax as it was a gain in capital, not trading.".

Now monetary and thus commodity inflation is caused solely and simply by government's lack of probity and prudence insofar as fiscal policy and money control are concerned.

Ergo, Government impose a tax caused and created by their own incompetence!

Lawson ramped up CGT. Brown replaced indexation (introduced by a Conservative government since they knew full well CGT was an iniquitous and wholly unfair tax in majority) with Taper Relief; Darling cancelled Taper Relief. Osborne has just, again, ramped up CGT.

However the causes and history and legacy are all forgotten and any new government will simply see how they can jiggle tax codes to winkle out a few more billion to waste through their own profligacy.

Please dispel from your minds any belief Dave and his gang have any real interest in the SME community, other than lip service: SMEs don't provide post-office sinecure directorships to retired politicians. Major corporates and banks do!

 

Thanks (0)
avatar
By North East Accountant
14th Jul 2015 11:00

Effective rates now higher

The effective rates for OMB over basic rate band are now 46% and over £150K 50.48% compared to 42% ad 47% for incorporated businesses or LLP's.

Increase in LLP's next move?

 

Thanks (0)
avatar
By buttinski
14th Jul 2015 11:22

Unincorporated businesses

Should this read?

Thanks (0)
avatar
By The Black Knight
15th Jul 2015 11:08

where on page 44

can someone show where this is in the budget report - still can't find it

Thanks (0)
avatar
By jline199
15th Jul 2015 21:43

Any implications for a non-resident shareholder on a UK company?

A UK company has two shareholders, one resident in the UK and the other resident in another EU country.

If dividends are paid under the new regime, any implications for the shareholder resident in the other EU country? That shareholder has never lived in the UK.

Thanks (0)
avatar
By youngloch
20th Jul 2015 12:19

Biggest losers here are those still working aged over 65

The consensus is that the dividend tax is a way of getting a Class 4 NIC equivalent on close company salary/dividend plans and I suppose it is BUT....

anyone got any companies where the shareholder/s are over 65 and as self employed therefore wouldn't be paying any NIC?

Seems to be a clear case for dis-incorporation there unless they are planning to take advantage of Entrepreneur's Relief.

Thanks (0)
avatar
By Old Greying Accountant
04th Aug 2015 13:31

Call me a cynic ...

... but I see this like GB's 0% CT rate that scoped thousands into PAYE/P11d's etc.

Many are saying they will advise clients to max out distributions and suffer the tax before April to save 7.5% after, may be that is what they want, an massive shot in the arm to the treasury now, and in the pre-election year the allowance would be raised or scrapped.

As for the savings allowance, another breaking of a fixed thing, like VED and driving licences. from what I see all those such as pensioner how previously has tax deducted at source from interest will now get gross income which they will required to return on a form to HMRC, whether it is on a tax return or whatever comes next it is an unnecessary burden they do not need opr deserve. 

The only real item in the budget I am in favour of is the scrapping of higher rate relief on BTL mortgages and the abolition of W&T. The way I see it is why should people build a large investment property portfolio effectively based on grants from the tax payer?

 I know it will hit some of my clients, but we have landlords with portfolios of hundreds of properties that cost them virtually nothing and the tax payer everything as they get tax relief on interest at marginal rates, allowance for assets they never replace and rents from a bloated welfare society! At least the new system encourages expenditure to keep property safe and clean

Thanks (0)

Pages