Labour to raise dividend tax from 7.5% to 20%

[Nazaire99]

Labour dividend tax rates for small business

Labour will be doing 2 things with respect to small companies and dividends:
1) Raising corporation tax rate from 19% to 21%
2) Equalising tax treatment of dividends with income tax

Regarding point 2) it is nothing of the sort because the dividend will already have been subject to corporation tax and there is no tax credit to offset this. So dividends effectively become double taxed.

As regards the new effective rate of taxation on profit distributed as dividends, they will be as follows under the Labour proposals:
1) Basic rate (20% tax) : 36.8% (take 100, tax at 21% and tax remainder at 20%, leaves 63.2)
2) Higher rate (40% tax) : 52.60%
3) Additional rate (45%, from £80K-£100K) : 56.55%
4) "Hidden" rate (67.5%, from £100K-£125K) : 74.33%
5) Top rate (50% over £125k) : 60.50%


Apart from the basic rate band, where effectively PAYE is taxed at 40.2% (take 100, pay out 32 tax + NI, which leaves you 68, this is out of 113.8 because of adding employers NI) the dividend tax rates proposed by Labour are in all cases higher than existing PAYE rates (49% for higher rate payers, 53.4% for additional rate payers and 66.6% for those between 100-125K).

Happy to be corrected if anyone thinks my figures are wrong!

Funny to think that a Labour government would for most contractors make being inside IR35 better than being outside!

[Amanensia]

Labour will be doing 2 things with respect to small companies and dividends:

Interesting, it hadn't occured to me that they'd be applying full personal taxes on top of Corporation Tax - but of course they must be, as otherwise "equalising tax treatment of dividends with income tax" would simply mean removing the 7.5% dividend tax, and that's clearly not what they mean.

I suppose on the bright side you could then ignore IR35 entirely as suddenly paying dividends leaves everyone massively out of pocket!

Hopefully they won't be doing anything at all...

[Nazaire99]

Interesting, it hadn't occured to me that they'd be applying full personal taxes on top of Corporation Tax - but of course they must be, as otherwise "equalising tax treatment of dividends with income tax" would simply mean removing the 7.5% dividend tax, and that's clearly not what they mean.

I suppose on the bright side you could then ignore IR35 entirely as suddenly paying dividends leaves everyone massively out of pocket!

Hopefully they won't be doing anything at all...

Labour have deliberately been vague about this. After all, they want people to believe that only the top 5% of wage earners will be worse off if they get into power.

This is of course complete nonsense. Anybody receiving dividends will be (a lot) worse off. Capital gains tax increased and threshold slashed (to £1000), married persons allowance abolished.

Not to mention if you hold shares in companies they will nationalise you won't be compensated fully. Or the big one for people who are saving for a pension (basically everyone now there is auto-enrolment), where they plan on pinching up to 10% of it for their so called "inclusive ownership funds".

[Amanensia]

It's such an odd suggestion I couldn't quite work out initially why they'd make it. Everyone would just pay salaries instead, which are obviously out of pre-tax company funds so only get taxed once (albeit plus ERNI.)

Then of course I realised that it's not really anything to do with us - we're just extremely minor collateral damage. It's about double-dipping on the profits of every large PLC out there. So you can't even get around it by diverting as much as you can to a pension, if you want to hold, directly or indirectly, any equities. Share prices would be utterly hammered. If I were terribly exposed I'd be loooking at getting some form of hedge in place until just after the election.

One hopes that it's just headline-grabbing and if they actually won the election someone with half a brain would run an eye over their promises and realise that this would be financial suicide. But I'm not sure there are that many people left in senior positions in Labour who do actually have half a brain. I find myself looking wistfully back at the days of Wilson, Callahan and Benn Sr!

[Nazaire99]

It's such an odd suggestion I couldn't quite work out initially why they'd make it. Everyone would just pay salaries instead, which are obviously out of pre-tax company funds so only get taxed once (albeit plus ERNI.)

Then of course I realised that it's not really anything to do with us - we're just extremely minor collateral damage. It's about double-dipping on the profits of every large PLC out there. So you can't even get around it by diverting as much as you can to a pension, if you want to hold, directly or indirectly, any equities. Share prices would be utterly hammered. If I were terribly exposed I'd be loooking at getting some form of hedge in place until just after the election.

One hopes that it's just headline-grabbing and if they actually won the election someone with half a brain would run an eye over their promises and realise that this would be financial suicide. But I'm not sure there are that many people left in senior positions in Labour who do actually have half a brain. I find myself looking wistfully back at the days of Wilson, Callahan and Benn Sr!

Labour can nationalise, but they will have to pay a fair price. A price "determined by Parliament" doesn't cut it. Thing is Mcdonnell is almost gleeful about underpaying for assets. He is out to destroy the capitalist system and the easiest way to do this is to undermine property rights. The same thing goes for his "inclusive ownership funds". It isn't about the workers, who won't even own the shares. And anyway most of the benefit will flow to the government. It is about undermining confidence in the equity markets regarding owning shares. After all, faced with the government arbitrarily stealing 10% of your shareholdings, most people would wonder why the government would stop there.

However, there is a problem. Quite apart from the ECHR making it difficult for Mcdonnell to confiscate the assets (enjoyment of property and all that) there are over 60 bilateral treaties where governments have undertaken not to expropriate assets. This is why some of the utilities are now owned by overseas holding companies.

You can probably tell I am quite anti-Labour, but their proposals regarding how they will nationalise/confiscate shares for "inclusive ownership funds" are mad, bad and dangerous. The first day of a Labour government will almost certainly see a run on the pound requiring exchange controls.

[billybiro]

Everyone in this thread......

....crying about the coming taxation changes...

[boxingbantz]

....crying about the coming taxation changes...

[Maslins]

It's such an odd suggestion I couldn't quite work out initially why they'd make it. Everyone would just pay salaries instead, which are obviously out of pre-tax company funds so only get taxed once (albeit plus ERNI.)

Yes, I imagine that's the point. People working day in day out in their businesses (whether they be contractors with questionable IR35 status or owners of bigger companies) who want to take an income from their company will then tend to do so via PAYE.

There is an argument, which I appreciate some people don't like, that the tax system shouldn't subsidise business owners by letting them pay a lower rate of tax than employees. Surely if you're a successful business owner you should be ending up with more money because your amazing skills/hard work lead you to make far larger profits than you could get as a salary, rather than because you pay less tax.

In turn that means micro businesses likely wouldn't have much in the way of "profits" going forwards (as most would be paid out as salary). Dividends become a bit more rare, and more just to reward investors. Joe Public likely won't cry too much for those with big stock market holdings paying more personal tax.

Not saying everyone will like it...but I see a valid logic to it. Also, knock on benefits:
- company owners often won't have to do personal tax returns anymore.
- mortgages for company owners will be simpler, as their income will just be a salary.
- biz owners will pay more tax as they go along, reducing the risk of getting big "surprise" tax bills.

[Manic]

Yes, I imagine that's the point. People working day in day out in their businesses (whether they be contractors with questionable IR35 status or owners of bigger companies) who want to take an income from their company will then tend to do so via PAYE.

There is an argument, which I appreciate some people don't like, that the tax system shouldn't subsidise business owners by letting them pay a lower rate of tax than employees. Surely if you're a successful business owner you should be ending up with more money because your amazing skills/hard work lead you to make far larger profits than you could get as a salary, rather than because you pay less tax.

In turn that means micro businesses likely wouldn't have much in the way of "profits" going forwards (as most would be paid out as salary). Dividends become a bit more rare, and more just to reward investors. Joe Public likely won't cry too much for those with big stock market holdings paying more personal tax.

Not saying everyone will like it...but I see a valid logic to it. Also, knock on benefits:
- company owners often won't have to do personal tax returns anymore.
- mortgages for company owners will be simpler, as their income will just be a salary.
- biz owners will pay more tax as they go along, reducing the risk of getting big "surprise" tax bills.

Completely stifles business saving though. 0 retained funds, first sign of trouble staff get laid off.

[Maslins]

Completely stifles business saving though. 0 retained funds, first sign of trouble staff get laid off.

From my understanding, there's no suggestion of stopping people leaving profits in the company. It would suffer corporation tax but no personal tax (no different to now).

Seems all the parties are murmuring about clobbering/removing entrepreneurs relief, as if they didn't, then Labour's plans would just make periodic liquidating even more appealing!