The recent summer budget has suggested some big changes for limited companies.On a positive, note the rate of corporation tax is being lowered from 20% to 19% in 2017 and down to 18% by 2020.
Annual investment allowance is still active and being set at £200,000 from January 1, 2016. This encourages investment in business assets and attracts great tax relief.
Employing staff is seeing a rise in the minimum wage for those aged 25 and over – but the employers’ allowance is rising from £2,000 to £3,000 from April 2016. So a mixture of good and bad!
However, the biggest change is to introduce a tax on dividends. Currently the dividends you draw from your company within the basic rate tax band are deemed to have a 10% tax credit attached and hence are effectively tax free.
From April 2016 the first £5,000 of dividend income is expected to be tax free and any amounts above this up to the top of the basic rate band will be taxed at 7.5%.
So if you use the full basic rate band you could expect a personal tax bill of around £2,000 per year.
This is effective from April 2016 and so it makes sense to ensure you maximise your dividends up to this point.
The first tax bill for you would be for the tax year from April 2016 to April 2017 and would be payable by January 31, 2018.
We can’t escape this and there have been years of company directors paying a lot less tax on their income than being self-employed.
All is not lost as tax savings are still there and in most cases it’s still more tax efficient being a limited company, along with the other benefits of limited liability and protection of your personal assets.
As we get further updates on how this will operate we will keep you informed.
If you would like to discuss this in more detail please contact Nickie, Claire or Katy.