HOW WILL THE NEW DIVIDEND RULES AFFECT YOU?
In last week’s Summer Budget, the Chancellor made a surprise attack on owner managers of limited companies who take dividends instead of salaries report Harris & Co motorsport accountants.
Currently many owners of motorsport limited companies take a small salary and then take the rest of their remuneration by way of a dividend (often up to the limit of the 20% tax band).
In 2016-17, this structure will still work, but now any dividends over £5,000 will attract tax at 7.5%. For 2016-17, if you are paying yourself a salary of £11,000 to use up your personal allowances and a dividend of £32,000 to use up your 20% tax band, the new rules will give you an additional tax bill of £2,025.
Of course, you could consider switching away from a dividend to a salary. However, with employers’ NIC at 13.8% this is unlikely to be tax efficient.
The following table shows the effect of the new rules:
| Current | New | Salary |
| Rules | Rules |
|
| £ | £ | £ |
|
|
|
|
Salary | 11,000 | 11,000 | 38,000 |
Net dividends | 32,000 | 32,000 |
|
|
|
|
|
Corporation tax | 8,000 | 7,506 | 0 |
Personal tax | 0 | 2,025 | 5,400 |
Personal NIC | 353 | 353 | 3,593 |
Employers NIC |
|
| 4,131 |
Total tax | 8,353 | 9,884 | 13,124 |