Do you share dividend income with your spouse in your family company?
Those contractors who do will pay a significantly higher amount of tax under the new income shifting proposals that the Treasury put forward last week.
Take a look at our specialised Income Shifting Calculator to see how much more you will have to pay.
The Contractor Calculator network is the largest independent internet resource for the UK contracting industry with 80,000 unique readers per month. Our expert, Dave Chaplin, has determined the breakdown under the new income shifting tax law.
Take the following typical scenario. A husband and wife both work at a contracting business, and each owns 50% of a contracting business, but only one partner provides a service with a clear market value. Both earn an annual salary of 6000 pounds. The company however makes an annual profit of 100,000 pounds. So we input the following into our specialised calculator:
Salary 6000
Salary 6000
Profit 100,000
Dividend 50%
The calculator determines that the couple's current combined net annual income is £86,892, and current combined annual taxes are £25,311. What is the Income Shifting liability?
The couple is clearly caught by the legislation since only one partner provides services with a clear market value. As they are caught within the Income Shifting Legislation (thus removing dividend splits), their tax bill could increase by £7,611 (30%) to £32,923.
The couple's net income would then decrease by £7,611 (8.76%) to £79,281 per year.
If you are not prepared to suffer such a loss--a 30% tax increase--watch our Contracting News section for the best strategies to cope with the new legislation.
Dave Chaplin is a former IT contractor in the City of London, and is founder and CEO of ContractorCalculator, and author of the Contractors' Handbook.
Started in 1999, ContractorCalculator (this site) is the leading independent website for the UK contracting industry – most of whom are highly skilled knowledge workers.
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News media should contact Dave Chaplin for more information on this complex issue at 0871-218-5152 or at office@contractorcalculator.co.uk .
Media making use of the above statistics are kindly requested to cite http://www.contractorcalculator.co.uk as the source.
Published: Tuesday, December 11, 2007
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