Was it a good Budget for you?
Dividends. The so-called dividend allowance (DA) of £5,000, which is actually a 0% rate band, introduced on 6 April 2016 will be slashed to just £2,000 with effect from 6 April 2018. When first announced the DA was viewed as a sop to lessen the blow of the 7.5% across-the-board rise in tax rates on dividends.
Attack on owner managers. The higher rates were especially aimed at director shareholders who take their income in the shape of a low salary, topped up with large dividends. Cutting the DA was an easy target for the Chancellor. Anyone receiving dividends of £5,000 or more per year will be worse off by up to £1,140 (see The next step ).
No escape. There’s no means for you to avoid the higher tax unless you reduce the dividends you receive below £5,000 per annum. However, even with the reduction in the DA dividends remain the most tax-efficient way to take income from your company.
NI up for self-employed. As anticipated the Chancellor announced a hike in profit-related NI (Class 4) from 9% to 10% in April 2018 and then to 11% a year later. The blow will be softened by the abolition of flat rate NI (Class 2) which currently costs the self-employed £146 per year. An individual making profits of up to £16,250 will pay slightly less in NI overall, while someone with profits of more than around £47,000 will pay approximately £600 more per year.
Consultations. The Chancellor (again) announced a call for evidence to be followed by HMRC consultations in respect of the valuation of employee perks and expenses. This can only mean bad news for employers, directors and employees. However, we don’t expect the consequences to have an impact before 6 April 2019 and in the meantime we’ll keep you informed of developments.
For examples of how the reduction in the DA might affect you, visit http://tipsandadvice-tax.co.uk/download (TX 17.12.01).
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