With the changes that came into effect from April 2016, it is time to consider the benefits / costs of being an incorporated entity.
1. There will be no distinction between net and gross sums. What you receive is what you will be taxed on.
2. Dividend income will be added to non-dividend income in the usual way (stacking them up like building blocks), and there will be no tax on the first £5,000 of dividend income.
3. The tax rates for dividends above the £5,000 nil-rate band will be taxed at 7.5% in the basic-rate band, 32.5% in the higher-rate band and 38.1% in the additional-rate band.
What does this mean?
If your dividend income is under £5,000 there will either be no change or a reduction.
Above £5,000 dividend income you will see an increase in your tax bill.
A business owner with £30,000 profits, an £8,000 salary and the rest paid in post-corporation tax (CT) dividends would pay £750 more tax in 2017 tax year than in the 2016 tax year.
Act now to try and reduce your next years tax burden, contact Emjay Associates Ltd on 01903 367073 to arrange a meeting.
(Thanks to Michael Steed MAAT via AAT Accounting Technician for background on this subject)