Economics question

[Flying Dodo]

I know there's a £5,000 tax free allowance for dividends coming in from April - which is available to all, even additional tax rate payers. Not sure whether that is what is being referred to?

That's a different allowance. The first £5,000 worth of dividends will be free from tax. Anything in excess of £5,000, when added to any other taxable income up to the basic rate limit of £43,000, will be taxed at 7.5%, and then at 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Means a lot of extra tax for company owners used to getting paid in dividends.

 

[srw]

That's a different allowance. The first £5,000 worth of dividends will be free from tax. Anything in excess of £5,000, when added to any other taxable income up to the basic rate limit of £43,000, will be taxed at 7.5%, and then at 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

Means a lot of extra tax for company owners used to getting paid in dividends.

And if I've done my mental arithmetic properly means that getting paid through a limited company rather than directly will only be tax-efficient for basic-rate taxpayers.

 

[SD1]

Isn't interest below £1000 tax free for basic rate tax payers?

No tax on savings if your income is below £15,600 this tax year....and last. Well I filled the forms in and they didn't tax me! The £15,600 statement was last year but this financial year. If doing a regular savings account and your interest was paid....as far as I am concerned after January the 1st 2015 you paid no tax. That assumes you filled the forms in, if not you will have to claim from the taxman.

 

[SD1]

You're quite correct - it means for a basic rate tax payer, you can receive up to £1,000 pa in interest and not have to pay tax on it.

Better that's the way I understood it. Worried me for a bit.

 

[Flying Dodo]

And if I've done my mental arithmetic properly means that getting paid through a limited company rather than directly will only be tax-efficient for basic-rate taxpayers.

Yup. The Treasury has already benefited from the current tax on dividends, due to a rise in special dividends since the announcement was made, by firms wanting to beat the tax rise from April.

 

[GrumpyGregry]

And if I've done my mental arithmetic properly means that getting paid through a limited company rather than directly will only be tax-efficient for basic-rate taxpayers.

The current situation is that one can take an income (salary+dividends) up to the basic rate top limit c£42k without paying a penny in income tax. Company has to pay Corporation tax thobut. One wonders at what sort of lifestyle a body needs if forty-two grand won't cover it.

So the shrewd director will only pay themselves salary+dividends up to the basic rate limit, have their company make significant pensions contributions on the their behalf*, invest their profits in excess in something longer term, and eventually wind their company up voluntarily to liberate the profits. Or...

Not being shrewd I'll just pay the taxes due for the income (salary+dividends) I draw. I get very bored with contractor/consultant colleagues wittering on about their unethical tax dodges. One was spluttering loudly last week as his, in my opinion well-dodgy-not-with-a-barge-pole, offshore (IoM) employment trust wheeze is being audited by HMRC. His day rate is twice mine. How much money can he need for pity's sake?

* And I seem to remember reading somewhere that it was entirely possible for an individual employee (of a personal services company) to be drawing on their pension, whilst their employer was still making contributions on their behalf, into the pension fund. Must find out if that is true.

 

[GrumpyGregry]

Means a lot of extra tax for company owners used to getting paid in dividends.

Boo-ruddy-hoo. Paying tax is the membership subscription for being a member of society.

(and I say that as a company owner used to getting paid a pittance as a salary and taking the rest of my income in dividends)

All the Chancellor has done is guarantee that folks day rates will go up to compensate for the extra tax. Mine wont. But then I'm viewed with deep suspicion by contractor colleagues mainly, I think, because I don't own a car. Go figure.

 

[Flying Dodo]

* And I seem to remember reading somewhere that it was entirely possible for an individual employee (of a personal services company) to be drawing on their pension, whilst their employer was still making contributions on their behalf, into the pension fund. Must find out if that is true.

It's true for just about anyone in fact. Most Government schemes such as the NHS etc however don't allow you to draw a pension in respect of one period of service and then accrue further pension if you'd been in the older, more generous sections (before they started cutting back the benefits).

 

[Flying Dodo]

Boo-ruddy-hoo. Paying tax is the membership subscription for being a member of society.

(and I say that as a company owner used to getting paid a pittance as a salary and taking the rest of my income in dividends)

All the Chancellor has done is guarantee that folks day rates will go up to compensate for the extra tax. Mine wont. But then I'm viewed with deep suspicion by contractor colleagues mainly, I think, because I don't own a car. Go figure.

I wasn't complaining about the extra tax they'll have to pay!

(keeps me in a job).