Contractors and business owners can calculate how much extra Dividend Tax they will pay once the Dividend Tax rules change takes effect from April 2016 with a new Dividend Tax Changes Impact Calculator, and can use these figures alongside professional tax advice to start planning for the unexpected tax charges.
In his Summer Budget 2015, the Chancellor George Osborne announced that the Dividend Tax rules are to be reformed and that from April 2016, new rules and rates will apply, brining many more contractors and small business owners into paying dividend tax.
ContractorCalculator CEO and creator of the website’s online interactive tax and income calculators Dave Chaplin believes that most contractors will be adversely affected by the new tax. In particular spouses and civil partners will be hit hardest.
“The income at which the Dividend Tax first takes effect is quite modest,” he says. “Contractors taking a salary of £8,040 will start to pay extra tax with a dividend as low as £9,000, which represents an annual income of only £17,040.”
The new Dividend Tax Changes Impact Calculator uses the new rules that take effect from April 2016. This calculator will show contractors and company owners how much extra tax they will pay as a result of the new rules.
According to Chaplin, the new calculator is easy to use and delivers detailed results: “Contractors and business owners can simply enter their salary, net dividend and current tax code.
“The calculator will show that there is nothing more to pay or, more likely, it will show the tax that would have been paid under the existing dividend tax regime, the tax that now has to be paid following the Dividend Tax changes and the percentage increase.”
"As the chart shows, contractors who pay themselves only £30,000 of their company's profits will pay an additional £1,653 in tax each year," says Chaplin. "You can double or treble this if the contracting business splits dividends by a family or husband and wife team."
Contractors and business owners who wish to calculate how much extra tax they and their spouse/civil partner will pay should perform the calculator for each individually and then add the resulting additional tax totals together.
Chaplin concludes: “What contractors and business owners will learn from using the calculator is how much more tax they will be paying from April 2016, and at what relatively low levels it will take effect.”
Editors note (20th August 2015):
On 17th August 2015 HMRC published a Dividend Allowance Factsheet, which explained that the £5,000 Dividend Tax Allowance was to be implemented as a zero rate tax, contrary to what industry experts had agreed after the Summer Budget. Further, because it is now a zero rate tax (and not an allowance which would be taken off total income to arrive at taxable income) they confirmed that “Dividends within your allowance will still count towards your basic or higher rate bands”. For many contractors already paying higher rates of tax the consequence is an additional tax burden of £1,250 per year on top of the rises previously reported.
For more detail please see:
HMRC clarification of Dividend Tax changes will cost most contractors another £1250
To calculate the extra taxes you will be paying from April 2016, please use our Dividend Tax Changes Impact Calculator