Dividends Tax

[TheCyclingProgrammer]

For now. Who do you think will pay for the lower CT rates? As of 16/17, 27.5% is correct.

No it isn't, as illustrated earlier. You're not accounting for the fact that CT applies to the gross profit, the dividend tax applies after the reduction of CT and the £5k allowance, or the personal tax threshold.

Somebody taking £11k salary and £32k in dividends will need to have a gross profit of £40k (£51k turnover if you add back the salary and ignore other expenditure) and will pay £8k corporation tax and £2025 in dividend tax, giving an overall take home of just under £41k, which is 78.5% or an effective tax rate of 21.5%.

Anyone going into the higher tax band will be paying 32.5% instead of 22.5% (of the grossed up amount) which does represent a significant increase although as you will no longer be grossing up you can effectively take more before you hit the additional rate threshold than before.

An extra £10k dividend into the higher rate would have increased your tax bill by £2500 last year (and moved you £11,111 closer to the additional rate threshold) and this year will cost you £3250, so an extra 7.5% in real terms.

Nobody knows what will happen in the future but yes, I'd expect the dividend rates to increase in line with CT decreases. This should in theory be neutral but may affect your overall take home if the upper rate threshold doesn't increase in step with those changes.

[AtW]

As I said, there's a bigger impact if you go into higher and additional rate tax but the impact on those (the majority?) who stay below the threshold is not that severe at all.

Yes if you are poor then there is no tax hike at all. Nothing to worry about

[northernladuk]

Yes if you are poor then there is no tax hike at all. Nothing to worry about

Suits us here in the North nicely.

[AtW]

Suits us here in the North nicely.

Is that what your accountant told you???

[northernladuk]

Is that what your accountant told you???

No. I know I'm from the North

[Lance]

I'd expect the dividend rates to increase in line with CT decreases.

Why?
You're suggesting that the treasury would try and make new tax changes fair to the likes of us. That's pretty optimistic.

The dividend tax hike was purely to hit us (it's what I'd do if I was chancellor). CT tax cuts are nothing to do with us and everything to do with big business.

Anyway. With Gideon gone I'd say that any CT tax cut is pretty speculative now. We'll have to wait till Autumn.

[TheCyclingProgrammer]

Why?
You're suggesting that the treasury would try and make new tax changes fair to the likes of us. That's pretty optimistic.

No I'm not, I'm suggesting the exact opposite. If corporation tax rates decrease it would in effect cancel out the dividend tax for many contractors.

Hence, I'd expect an increase in the dividend tax rate as corporation tax drops to ensure we still effectively pay the same overall tax rate. If they drop CT rates without increasing the dividend tax to compensate they'll be shooting themselves in the foot.

How are corporation tax cuts "nothing to do with us"? We run limited companies and would also benefit from CT cuts, obviously!

[Lance]

How are corporation tax cuts "nothing to do with us"? We run limited companies and would also benefit from CT cuts, obviously!

The effect us. Yes.
But they are not because of us.

[LondonManc]

The effect us. Yes.
But they are not because of us.

They'll help us more because the big boys worm their way out of CT anyway!