During the 2017 Spring budget, the chancellor announced further dividend tax changes. These are set to increase the amount of tax you will pay on dividend withdrawals from April 2018.
Where are we at now?
George Osbourne made significant dividend tax changes in 2015 which started in April 2016. It gave a £2,000 tax increase for basic rate tax payers who withdrew up to higher rate threshold (£43,000) from their company. The change was taxpayers now receive up to £5,000 of dividend income tax free.
From April 2018, that figure will reduce to just £2,000. This will increase personal tax liabilities by about £225 in the basic rate band.
Why is this changing?
The government want to try and decrease the tax benefit of trading through a limited company. This tax increase is part of that remedy.
Who’s affected by this?
The new tax change is Company shareholders who are paid dividends from the companies they are invested in.
Do you have any good news?
Yes, corporation tax decreases from April 2017 to 19%, then to 17% from April 2020.
Our sums, based on a sole director / shareholder of a limited company who has £32,000 profits – pre tax and directors salary show –
- Drawings will increase in the 17-18 tax year by about £200.
- This saving will be wiped out in 18-19
- From 2020-21, drawings can increase by about £400
Also, at this level of profit there is still a tax advantage compared to being a sole trader.
Is there anything else I can do to save some tax?
Depending on your circumstances, you could –
- Look at transferring a shareholding to a spouse. This could save upwards of £375 tax per year.
- Make company pension contributions. This will save corporation tax and also increase your retirement savings pot.
- Pay childcare through your business. This could reduce your drawings and save corporation tax.
There are other ways to reduce your tax liability. If you want us to take a look at yours, get in touch today and let us see how we can help you.