The recent summer budget has suggested some big changes for limited companies – here we summarise the most significant changes, including the introduction of a tax on dividends.
On a positive note, the rate of corporation tax is being lowered from 20% to 19% in 2017 and down to 18% by 2020.
Investment allowance is still active and being set at £200,000 from 1st January 2016. This encourages investment in business assets and attracts great tax relief.
If you employ staff, there is a rise in the minimum wage for those aged 25 and over but the employers allowance is rising from £2,000 to £3,000 from April 2016. So a mixture of good and bad!
Tax on Dividends
However, the biggest change is to introduce a tax on dividends. Currently, the dividends you draw from your company within the basic rate tax band are deemed to have a 10% tax credit. From April 2016 the first £5,000 is expected to be tax free and any amounts above this up to the top of the basic rate band will be taxed at 7.5%.
So if you use the full basic rate band you could expect a personal tax bill of around £2000 per year. This is effective from April 2016 and we will be doing all we can to ensure you have the most benefit of the final period where we don’t pay tax.
The first tax bill for you would be for the tax year from April 2016 to April 2017 and would be payable by 31st January 2018.
We can’t escape this and there have been years of company directors paying a lot less tax on their income than being self-employed. All is not lost: tax savings are still there and in most cases it’s still more tax efficient being a limited company along with the other benefits of limited liability and protection of your personal assets.
As we get further updates of how this will operate we will keep you informed. If you would like to discuss this in more detail please contact Nickie, Claire or Katy.