Dividend tax - things I didnt realise

[WordIsBond]

OK so maybe I'm stupid

Unproven, but the evidence is mounting.

Correct. Even though you'll be paying more tax than before, if you are taking the optimum salary and dividends up to the higher rate threshold then strictly speaking your overall take-home will increase (in other words instead of feeling the effect of the dividend tax in your own pocket, it will impact your company profits instead).

Well, technically it doesn't impact company profits at all if you pay more dividends this year than last. But it does impact how much profit is retained in the company, which I know is what you meant. Just that somebody reading might think it affects Corporation Tax due on profits, and it doesn't, we're talking about after-tax profits here, so I decided to be pedantic.

[psychocandy]

That's why I don't rely on my understanding but let them tell me what divi I can draw based on year end accounts they're preparing, and income I've received during the tax year the divi is declared within.

Let them earn their fees.

Agree. And Im always willing to take my accountants advice on things like recommended salary etc.

BUT two things have changed this year:-

1. Salary is back to £8060 because of the withdrawal of the NI allowance.
2. Dividend tax

Be interested to see, assuming company income is the same as last year, and assuming all taxable profits are paid out in dividends, how things compare.

[Darren at Fox-Bartfield]

Be interested to see, assuming company income is the same as last year, and assuming all taxable profits are paid out in dividends, how things compare.

Why not ask your accountant to do a projection?

[Jessica@WhiteFieldTax]

Yes thats what my accountant told me. Can't work out in my head how the removal of grossing up makes that much difference though?

Apart from meaning your gross is now less into the next tax bracket? i.e. £30K is now £30K not £33.33K. (I guess £3.33K into 40% means 32.5% on this now not 7.5% so few quid if your close to or over the 40%). Am I right here?

The (or one of the) salient points about grossing up being removed is that in effective terms the dividend tax is an increase of 6% not 7.5%

Table towards the bottom of this page if you are interested:

https://www.whitefieldtax.co.uk/tax-on-savings/

[psychocandy]

Why not ask your accountant to do a projection?

Have done. In progress.

[Jessica@WhiteFieldTax]

Be interested to see, assuming company income is the same as last year, and assuming all taxable profits are paid out in dividends, how things compare.

There is a calculator on our web site that lets you do a 15/16 and 16/17 comparison if you wish.

Link is here: https://www.whitefieldtax.co.uk/psc-...ax-calculator/

But E&OE and a bit experimental in how excel is embedded to web thingy (in other words please be kind in any feedback)

[Maslins]

If a client's insistent on paying no personal tax, then the amount they can withdraw is indeed greatly reduced (from ~£38k to ~£16k).

One benefit of the grossing up/notional dividend tax credit being removed, is that you can take a fair chunk more in dividends before you hit higher rates. So, despite the basic rate tax bracket not increasing that much, whereas last year with an ~£8k salary you could take ~£30k divis before hitting higher rates, it's not ~£35k.

Realistically not many clients would have specifically taken £35k dividends last tax year, but if they did and compare like with like this tax year, there's virtually no difference (as previously you'd be ~£5k in higher rate, whereas now you're just about all in basic rate). In practice though I realise for many people you're comparing ~£30k divis last tax year and £nil personal tax with ~£35k divis this tax year and ~£2k personal tax.

It should actually be quite a bit simpler from now on...but I think where so many people had got their head around the complexities of the notional dividend tax credit, it being removed confuses things.

[andrewhillierhopkins]

Yes thats what my accountant told me. Can't work out in my head how the removal of grossing up makes that much difference though?

Apart from meaning your gross is now less into the next tax bracket? i.e. £30K is now £30K not £33.33K. (I guess £3.33K into 40% means 32.5% on this now not 7.5% so few quid if your close to or over the 40%). Am I right here?

The removal of the 10% tax credit means that whereas previously you could take (under 2016/17 tax bands) £31.5k net dividends tax free (before you hit the 25% higher rate tax on the net dividends, now you take £35k net dividends before you hit the 32.5% higher rate tax - BUT now you pay 7.5% on £27k of the dividends.

[psychocandy]

Rough estimate. Since I income split not a huge amount goes over the threshold. (yes yes wave your todgers fellas!). And with 24 month rule coming up for me. :-(

Reckon about £300 or so a month worse off take home. Not end of world but still.

[LondonManc]

Barry is most definitely the "Flatlands"

Indeed, plenty of water.