Dividends Tax

[TheCyclingProgrammer]

Can't see suity getting a 150% pay increase.

On the whole though, that's a very useful summary. You have clearly never worked in the public sector

No, I haven't.

£5/day increase on a £500/day rate would obviously only be a 1% increase.

Having said that I had a bit of a maths fail in my previous post. You'd probably be looking to increase you're daily rate by about £20/day assuming you work 240 days of the year.

Probably easier to try and get an extra 10 days work if you're not already maxed out.

[LondonManc]

No, I haven't.

£5/day increase on a £500/day rate would obviously only be a 1% increase.

I know, but reading it first time, it looks like a £2/day to £5/day increase

[MrMarkyMark]

I know, but reading it first time, it looks like a £2/day to £5/day increase

Suity will be along shortly to clear up all this confusion

[AtW]

Obviously there is a bigger impact of you go into the higher rate but otherwise that's only a 4.6 percentage point increase

"Additional" rate tax on dividends was 30.56% and now 38.1%: 25%+ increase in taxation. Considering the company pays corp tax as well the taxation burden is bigger than direct 45% income tax:

Income notional £1000 at 45% = £ 450 tax.

Company profit £1000 at 20% corp tax (£200), £800 remaining as dividends taxed at 38.10% = £304.8 tax + £200 = £504.8

At 30.56% tax take the combined tax was £444.48 - pretty much spot on 45% level, that was pretty fair.

Even if they drop corp tax to 15% then total tax take would be £473.85 - still higher than normal level of income tax. Obviously there is no national insurance, but these are dividends, they should not be taxed higher than income tax level.

That's really bad, for comparison Germany has got 25% flat rate tax on dividends.

[Fred Bloggs]

Be careful here when talking about lowering corporation tax. The big cuts in corporation tax rate benefit only larger companies. The standard rate not long ago for larger companies was 28%. It seems this is heading down to 15% may be perhaps in this parliament by 2020. But, the sting in the tail, who is paying for the larger companies who will pay a lot less tax?

It's you and me. For a typical FTSE 100 company shareholder to pay any dividend tax at all he needs to hold maybe ~£200k of shares outside of an ISA or a SIPP wrapper. And the FTSE100 company will benefit directly from the huge reduction in corporation tax.

But for us, who take a large proportion of our remuneration as dividends we're paying 7.5% tax after just the first £5k. A total tax take on small companies/owners of 27.5% versus the proposed 15% for big companies. And would Ladbrokes give you odds against the dividend tax increasing in the next few years? No. Soon that 7.5% that you aren't worried about will become 10, 12.5 even 15%. And it is all to save GSK, BAE Systems, Rolls Royce, HSBC etc... corporation tax.

Nice one Mr Chancellor.

[AtW]

Be careful here when talking about lowering corporation tax. The big cuts in corporation tax rate benefit only larger companies. The standard rate not long ago for larger companies was 28%. It seems this is heading down to 15% may be perhaps in this parliament by 2020. But, the sting in the tail, who is paying for the larger companies who will pay a lot less tax?

I expect Govt to "simplify" the tax system and align dividend tax rates with income tax rates, so there will be another big increase to totally reverse any reductions in corp tax that they may bring about.

[Fred Bloggs]

I expect Govt to "simplify" the tax system and align dividend tax rates with income tax rates, so there will be another big increase to totally reverse any reductions in corp tax that they may bring about.

Yes, that's possible.

[TheCyclingProgrammer]

Not sure if this is what you are getting at, but the reduction in CT rates applies to all companies. There is no small profits rate anymore.

And as I pointed out earlier, if you stay below the higher tax rate threshold the overall tax rate is more like 23%, not 27.5%.

[TheCyclingProgrammer]

"Additional" rate tax on dividends was 30.56% and now 38.1%: 25%+ increase in taxation. Considering the company pays corp tax as well the taxation burden is bigger than direct 45% income tax:

Income notional £1000 at 45% = £ 450 tax.

Company profit £1000 at 20% corp tax (£200), £800 remaining as dividends taxed at 38.10% = £304.8 tax + £200 = £504.8

At 30.56% tax take the combined tax was £444.48 - pretty much spot on 45% level, that was pretty fair.

Even if they drop corp tax to 15% then total tax take would be £473.85 - still higher than normal level of income tax. Obviously there is no national insurance, but these are dividends, they should not be taxed higher than income tax level.

That's really bad, for comparison Germany has got 25% flat rate tax on dividends.

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.

[Fred Bloggs]

Not sure if this is what you are getting at, but the reduction in CT rates applies to all companies. There is no small profits rate anymore.

And as I pointed out earlier, if you stay below the higher tax rate threshold the overall tax rate is more like 23%, not 27.5%.

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