Reply to: Budget dividend tax changes - anyone found a good calculator online yet?

[northernladuk]

First, I'd wait until the rules are fully documented and understood so that the impacts can be properly assessed, without speculation. Second, once the rules are documented, I'd talk to my accountant to establish the impacts in my specific circumstances. The options will depend not only on your specific circumstances but various judgements about where you see things going in future (e.g. with ER).

Totally this.

[jamesbrown]

Hi All.
Given the expected dividend tax increases, what would you do if your company has significant surplus funds, CT already paid. i.e. tax it all out before April 2016?

thanks

First, I'd wait until the rules are fully documented and understood so that the impacts can be properly assessed, without speculation. Second, once the rules are documented, I'd talk to my accountant to establish the impacts in my specific circumstances. The options will depend not only on your specific circumstances but various judgements about where you see things going in future (e.g. with ER).

[pip2015]

excess company funds

Hi All.
Given the expected dividend tax increases, what would you do if your company has significant surplus funds, CT already paid. i.e. tax it all out before April 2016?

thanks

[smalldog]

I plugged so numbers in and about 4k worse per year. Hardly an extinction event...

[WordIsBond]

For those who haven't seen it, Contractor Calculator has a handy look-up table for dividend taxes. I haven't verified the numbers but they look roughly correct.

[Waldorf]

Apart from the small concession of the £5,000 allowance, we are clearly going to be hit with a tax hike of 7.5% on our dividends.

We have the CT reduction to 18% eventually but I suspect that the recognition that the CT paid by the company in someway 'paid' some of the tax liability has now gone and so I think that eventually the dividends will be taxed in full at 20%, 40% etc.

The 5K allowance exempts most people and many people have no idea about tax so no votes will be lost.

If that happens, the tax advantages of using a company will erode if not be eliminated. It is just a question of when this fully comes in, I suspect it will be after the next general election so no immediate concerns. There are plenty of others to keep us occupied until then!

[LandRover]

The difference is that income tax hits everyone, and this hits people who they've obviously decided to target. So I could easily see it going up. The target might be 10%, and it could go to 8.75% in 2017 with the first CT cut, and 10% with the second in 2020.

But I agree, I also wonder if CT will drop sooner, or if the divi tax will be phased in. This is the bad news budget, after all. Make everyone unhappy now to get the pain over, and you have 5 years to make people happy again.

So we could see something like, "After consultation, we've decided to phase in the dividend tax rate to coincide with the decrease in corporation tax. It will be 5% in 2016-7, 6.25% in 2017-2019 when the corporation tax drops to 19%, and 7.5% in 2020 and following." And everyone will be glad instead of mad that they aren't hitting us as hard as we thought they were.

Sheep are so easy to fool.

I find it a difficult that some feel it's okay and "WE" have had it good and should accept the new tax. Freelance contractors get nothing compared to employed staff concerning holidays, sick pay etc, so there is a NEED to have savings to put aside for periods of ill health, no work etc. To somehow think its okay George is only taking a little from us and it could be worse is missing the point. Imho it's the beginning of further tinkering concerning dividends, he has us all down as his cash cow and he will milk us, it's easy to pick the pockets of individuals. The man is a devious toad, he will manage the media and make us all to be avoiders with his insistence of comparing us to employed staff.

[WordIsBond]

It doesn't happen on income tax and as mentioned, the rates set seem to deliberately bring dividend taxation inline with income tax.

I do wonder if CT will drop sooner - it's great PR for him to say "we decided to bring this tax cut forward a year" even if that was planned all along.

The difference is that income tax hits everyone, and this hits people who they've obviously decided to target. So I could easily see it going up. The target might be 10%, and it could go to 8.75% in 2017 with the first CT cut, and 10% with the second in 2020.

But I agree, I also wonder if CT will drop sooner, or if the divi tax will be phased in. This is the bad news budget, after all. Make everyone unhappy now to get the pain over, and you have 5 years to make people happy again.

So we could see something like, "After consultation, we've decided to phase in the dividend tax rate to coincide with the decrease in corporation tax. It will be 5% in 2016-7, 6.25% in 2017-2019 when the corporation tax drops to 19%, and 7.5% in 2020 and following." And everyone will be glad instead of mad that they aren't hitting us as hard as we thought they were.

Sheep are so easy to fool.

Back to the topic, I think the Contractor Calculator tax calculator is right, but it is still based on some assumptions we can't be certain of. And they are still saying that in some cases contractors will pay higher taxes than PAYE employees. That's only true if you ignore employer NI.

[d000hg]

This is the start imo, when required I have no doubt the dividend tax and it's thresholds will be adjusted to take more tax each year. There is a long history of this happening on other taxes.

It doesn't happen on income tax and as mentioned, the rates set seem to deliberately bring dividend taxation inline with income tax.

I do wonder if CT will drop sooner - it's great PR for him to say "we decided to bring this tax cut forward a year" even if that was planned all along.

[LandRover]

As I'm sure I've said before the dividend change is annoying but not that important (heck we've had it very, very good for a long time).

This is the start imo, when required I have no doubt the dividend tax and it's thresholds will be adjusted to take more tax each year. There is a long history of this happening on other taxes.

[pr1]

It depends if you think the CT cut will be accompanied by an increase in divvy tax.

i'd bet my house it will

[mudskipper]

Wouldn't CT rate cut compensate for it, I did some quick calculations and it was roughly the same as before from 2018.

It depends if you think the CT cut will be accompanied by an increase in divvy tax.

[eek]

As I'm sure I've said before the dividend change is annoying but not that important (heck we've had it very, very good for a long time).

The killer in the budget is the potential loss of expenses.

[jamesbrown]

I think that's about the size of it - though bear in mind it will take a couple of years to slide down fully to 18%.

Of course successive budgets may lower this further and will possibly raise the personal allowance past that already announced.

As I've said elsewhere - if this very minor fluctuation has you looking for permanent jobs then you were on the wrong contract.

I think it was mooted as 2017 for 19% and 2020 for 18%, so more like 4-5 years, although things could change. Also, while I entirely agree with the comments about the dividend taxes being a minor irritation, there are other aspects of this budget that are more worrying, specifically the expenses and IR35 review, which do have the potential to materially change the landscape and also point to a direction of travel (e.g. to speculate, some form of qualifying criteria for relief on an uprated dividend tax).

[PerfectStorm]

Wouldn't CT rate cut compensate for it, I did some quick calculations and it was roughly the same as before from 2018.

I think that's about the size of it - though bear in mind it will take a couple of years to slide down fully to 18%.

Of course successive budgets may lower this further and will possibly raise the personal allowance past that already announced.

As I've said elsewhere - if this very minor fluctuation has you looking for permanent jobs then you were on the wrong contract.