Whats your views on Budget 2015?

[WordIsBond]

I don't think the dividend changes are as grim as first thought - or at least as I first thought. About 4% increase in marginal rate, but with a taper on its impact due to the £5k exemption. The cut in the CT rate once it's activated in full mitigates the changes, as does the lower taxable amount for dividends now they are not grossed up.

Seems about right -- for 2020. You've used 18% CT, which doesn't come in until then. And there is one more thing besides death and taxes that is certain -- government is going to change taxation again. It's probably more useful to use 20% (for next year) or at least 19% (for the following three years).

The other thing you've done is used a salary of £10,600. That made sense for a lot of people, when there was the NI Employment Allowance to use. Will it still make sense now? Probably not. But if it does, it is going to add another £300 hit in all of your scenarios.

Next year, a one-man band with £30K will not be £430 worse off, but about £1100 worse off. The following years will claw back £190 of that in lower CT, with an additional £190 improvement in CT in 2020 (unless the government changes things again before then).

For next year, it appears the £70K scenario will be about £3K worse off. and at £200K about £10800 worse off.

The threshold changes mitigate this slightly. But everyone gets those, not just contractors. This was an extremely hostile budget.

[WordIsBond]

Potentially those amounts double if two shareholders.

I wasn't sure what you meant by this statement. It seems to me having two shareholders mitigates the damage significantly. Both get the £5K tax free. In the £70K scenario, neither will hit the higher dividend tax rate, and in the £200K scenario, a lot more stays out of the higher rate.

In the £30K scenario, I think you save £375 (5% of £5K) with two shareholders, compared to the numbers for one shareholder. Depending on how the income tax threshold works in relation to the £5K, it could be better than that. At £70K, I think you save around £3300.

[cityben]

I've crunched some numbers, and done a briefing for my clients.

It's E&OE, but people are welcome to have a look:

https://www.whitefieldtax.co.uk/web/...Budget2015.pdf

I don't think the dividend changes are as grim as first thought - or at least as I first thought. About 4% increase in marginal rate, but with a taper on its impact due to the £5k exemption. The cut in the CT rate once it's activated in full mitigates the changes, as does the lower taxable amount for dividends now they are not grossed up.

Assuming single shareholder, salary=PA, ignoring other tax band changes today, and (big caveat) trying to make sense of the comparatively brief wording, I think

Profit before salary, tax and dividend £30k - pay £430 extra
Profit before salary, tax and dividend £70k - pay £1,590 extra
Profit before salary, tax and dividend £200k - pay £6,735 extra

Potentially those amounts double if two shareholders.

Very E&OE, will check the figures in due course and, in any event, there is an awful lot to unfold.

Thank you, a good summary and even a sprinkling of comedy at the end! Here's hoping our accountants earn there money over the next few months and come up with the best way to combat this anti PSC budget

[Wijay@WISAccountancy]

Thank you everyone!

A Big thank you to everyone for taking time to post on this thread - really appreciate it!
One thing that was missed or I couldn't see in the discussions was that from 2016/17 Gross Dividend = Net Dividend, unlike current situ. I think everyone needs to be cautious before looking at the numbers.

I compared 2015/16 and 2016/16 - Net disposable income does increase which means contracting under limited company is still attractive. Please look at this numbers and provide your opinion.

Scanario 1 - Taking Dividend upto higher tax threshold
2015/16 (A)
Gross Salary = 10,600
Net Dividend = 28,607
Gross Dividend = 31,785
Total Gross = 42,385 (same as Higher tax threshold)

NI on salary = 305
Dividend Tax = 0

2016/17 (B)
Gross Salary = 11,000
Net Dividend = 32,000
Gross Dividend = 32,000
Total Gross = 43,000 (same as Higher tax threshold)

NI on salary = 353
Dividend Tax = 2025

C. Increase in Tax and NI (A-B) = 2,073

D. Increase in Dividend and Salary (A-B) = 3,794

Net Disposable (difference between Tax+NI and Dividend+Salary OR D-C) = 1,721


Scanario 2 - Taking 10,000 Net Dividend more than higher tax threshold
2015/16 (E)
Gross Salary = 10,600
Net Dividend = 38,607
Gross Dividend = 42,897
Total Gross = 53,497 (above Higher tax threshold)

NI on salary = 305
Dividend Tax = 2,500

2016/17 (F)
Gross Salary = 11,000
Net Dividend = 42,000
Gross Dividend = 42,000
Total Gross = 53,000 (same as Higher tax threshold)

NI on salary = 353
Dividend Tax = 4025

Increase in Tax and NI (E-F) = 1,573

Increase in Dividend and Salary (E-F) = 3,794

Net Disposable (difference between Tax+NI and Dividend+Salary) = 2,220

However this does mean you will need to take additional 3,794 from companies available profits.
Thank you
Wijay
WIS Accountancy LTD

[Jessica@WhiteFieldTax]

I wasn't sure what you meant by this statement. It seems to me having two shareholders mitigates the damage significantly. Both get the £5K tax free. In the £70K scenario, neither will hit the higher dividend tax rate, and in the £200K scenario, a lot more stays out of the higher rate.

In the £30K scenario, I think you save £375 (5% of £5K) with two shareholders, compared to the numbers for one shareholder. Depending on how the income tax threshold works in relation to the £5K, it could be better than that. At £70K, I think you save around £3300.

Yes, you are right. I was being very simplistic and ignoring rate band downshifts. In my defence it was late...

I need to crunch some numbers later this morning. The effects will taper in rather than double for two shareholders.

[Jessica@WhiteFieldTax]

Seems about right -- for 2020. You've used 18% CT, which doesn't come in until then. And there is one more thing besides death and taxes that is certain -- government is going to change taxation again. It's probably more useful to use 20% (for next year) or at least 19% (for the following three years).

The other thing you've done is used a salary of £10,600. That made sense for a lot of people, when there was the NI Employment Allowance to use. Will it still make sense now? Probably not. But if it does, it is going to add another £300 hit in all of your scenarios.

Next year, a one-man band with £30K will not be £430 worse off, but about £1100 worse off. The following years will claw back £190 of that in lower CT, with an additional £190 improvement in CT in 2020 (unless the government changes things again before then).

Yes, it's a simplistic look at things currently. There will be tweaking to do with salaries, but really it's marginal. I wanted to get a feel on the dividend tax aspects without getting bogged down in salary levels.

And you are right about the phase in of CT rates; I'm going to crunch some numbers on this and update the briefing later this morning.

[stphnstevey]

How does the loss of the grossing up effect things?

[The Spartan]

How does the loss of the grossing up effect things?

I think it means you can take more, but they'll be subject to the 7.5% up to the higher threshold

[v5srv]

A Big thank you to everyone for taking time to post on this thread - really appreciate it!
One thing that was missed or I couldn't see in the discussions was that from 2016/17 Gross Dividend = Net Dividend, unlike current situ. I think everyone needs to be cautious before looking at the numbers.

I compared 2015/16 and 2016/16 - Net disposable income does increase which means contracting under limited company is still attractive. Please look at this numbers and provide your opinion.

Scanario 1 - Taking Dividend upto higher tax threshold
2015/16 (A)
Gross Salary = 10,600
Net Dividend = 28,607
Gross Dividend = 31,785
Total Gross = 42,385 (same as Higher tax threshold)

NI on salary = 305
Dividend Tax = 0

2016/17 (B)
Gross Salary = 11,000
Net Dividend = 32,000
Gross Dividend = 32,000
Total Gross = 43,000 (same as Higher tax threshold)

NI on salary = 353
Dividend Tax = 2025

C. Increase in Tax and NI (A-B) = 2,073

D. Increase in Dividend and Salary (A-B) = 3,794

Net Disposable (difference between Tax+NI and Dividend+Salary OR D-C) = 1,721 (better off)

But the issue with being "better of" is that under (B) £43,000 (£11,000 salary and £32,000 div) has been taken from the company but under (A) only £39,207 (£10,600 salary and £28,607 div) has been used. So you will need to take an extra £3,793 from the company to be £1,721 better off. Not a good deal!!

[Wijay@WISAccountancy]

But the issue with being "better of" is that under (B) £43,000 (£11,000 salary and £32,000 div) has been taken from the company but under (A) only £39,207 (£10,600 salary and £28,607 div) has been used. So you will need to take an extra £3,793 from the company to be £1,721 better off. Not a good deal!!

Yes definitely this is a worst budget for contractors - I didn't complicate calculations with CT (which I will do shortly). I was trying to highlight the fact that Net Vs Gross dividend impact. Thank you for your feedback.