2 minute read
FINANCIAL ADVICE
TAX TIPS by Dean Flood
The chancellor presented his Spring budget on the 16th March. Below are some aspects of that budget that may be relevant to reader’s businesses or personal tax circumstances.
Advertisement
Tax on Dividends
Further to previous announcements, the chancellor confirmed the already well advertised changes to the tax system in relation to dividends. The current system of applying a notional tax credit to dividends received and the effective non taxation of dividends received by basic rate tax payers has been significantly altered. From the 6th April 2016, the concept of the notional tax credit will disappear and will be replaced by a charge of 0% for dividends received up to £5,000 in total. Dividends in excess of this amount will be taxed at 7.5% for basic rate tax payers, 32.5% for higher rate taxpayers and 38.1% for those at the additional rate. These changes will have a direct impact on the tax paid by business owners who receive most of their income by dividends through their own Limited companies. Should forecasts of personal income be available to business owners, it is recommended to obtain early tax calculations from their accountants to avoid nasty tax liability surprises in subsequent years.
Loans to Participators
Some company directors receive loans from their companies which assuming certain conditions, are subject to on account corporation tax charges of 25%. From 6th April 2016, new loans will be subject to a new rate of 32.5%.
Dean Flood Chartered Certified Accountant and Partner at Rowland Hall
Capital Distributions on Wind Up
In some scenarios, it is possible to make distributions to shareholders following the formal wind up of a Limited Company, and in such cases the distributions are treated as capital for tax purposes and assuming Entrepreneur’s relief is applied, the receipt is subject to CGT at 10%. HMR&C are now going to apply anti-avoidance legislation to all such distributions after 5th April 2016, so that any that do not meet certain criteria, will be taxed as dividend income as opposed to capital gains.
Capital Gains Tax Rates
The chancellor has announced a marked reduction in CGT rates with the basic rate reducing from 18% to 10% and the rate for higher rate taxpayers falling to 20% (previously 28%). The 10% rate will still apply for entrepreneur’s relief related transactions and the old rates will still apply to residential property disposals not covered by private residence relief.
The above is only a small extract of relevant legislation that will follow the budget announcement so please speak to your advisors to ascertain a full understanding of what may be relevant to you or your business.
