#SummerBudget: Government hits dividends as it continues clamp down on avoidance

#SummerBudget: Government hits dividends as it continues clamp down on avoidance

Those using dividends to pay themselves with dividends dealt a blow as chancellor replaces tax credit with £5,000 allowance

THE TAX ADVANTAGE in taking payment as a dividend is to be wiped out for many as the chancellor announced that the tax credit applied to dividends is to be replaced with a £5,000 allowance from April 2016.

Alongside the move, tax rates on dividend income will be increased to 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

The “simpler” system will mean that only those with significant dividend income will pay more tax. Investors with modest income from shares will see either a tax cut or no change in the amount of tax they owe, the chancellor claimed in his Budget address.

The move means taxpayers will be potentially able to earn £17,000 a year tax-free.

Many in recent years have used personal service companies to pay themselves national minimum wage and made up the difference in a dividend.

BKL Tax partner Geraint Jones said: “This will hit owners of personal service companies particularly hard as they generally remunerate themselves primarily via dividends.”

MHA MacIntyre Hudson tax partner Alastair Kendrick added: “A lot of individuals will have to look at how they are structured. Many people have been advised by advisers to take this route since IR35 came in in 1999, so I expect the desire for personal service companies to diminish.”

Share

Subscribe to get your daily business insights

Resources & Whitepapers

Why Professional Services Firms Should Ditch Folders and Embrace Metadata
Professional Services

Why Professional Services Firms Should Ditch Folders and Embrace Metadata

3y

Why Professional Services Firms Should Ditch Folde...

In the past decade, the professional services industry has transformed significantly. Digital disruptions, increased competition, and changing market ...

View resource
2 Vital keys to Remaining Competitive for Professional Services Firms

2 Vital keys to Remaining Competitive for Professional Services Firms

3y

2 Vital keys to Remaining Competitive for Professi...

In recent months, professional services firms are facing more pressure than ever to deliver value to clients. Often, clients look at the firms own inf...

View resource
Turn Accounts Payable into a value-engine
Accounting Firms

Turn Accounts Payable into a value-engine

3y

Turn Accounts Payable into a value-engine

In a world of instant results and automated workloads, the potential for AP to drive insights and transform results is enormous. But, if you’re still ...

View resource
Digital Links: A guide to MTD in 2021
Making Tax Digital

Digital Links: A guide to MTD in 2021

3y

Digital Links: A guide to MTD in 2021

The first phase of Making Tax Digital (MTD) saw the requirement for the digital submission of the VAT Return using compliant software. That’s now behi...

View resource