Successful family businesses, husband and wife and civil partnership teams will be the hardest hit by the Dividend Tax changes introduced by Chancellor George Osborne in the Summer Budget 2015.
“The thanks from our new Tory government that the UK’s hardworking and successful business owners get for lifting Britain out of recession is a tax hike that will cost a married couple running their own business an extra tax bill of up to £3,306 each year,” highlights ContractorCalculator CEO Dave Chaplin.
“This is from the party that claims to reward those who work hard and support family values, marriage and business. But the Conservatives have now set out their stall to confirm they intend to punish success, hard work and families who want to work together to build a better Britain.”
The 7.5% tax surcharge on profits will affect as many as 1.4m companies and their owners, with married couples and those in civil partnerships who share the success in their business hit the hardest. What’s more, the tax hike kicks in for those on incomes as low as £17,040 a year, and even households with the highest earner on £38,040 – well below the earnings when child benefit is withdrawn - will be forced to pay an additional £1,653 in tax - a massive 5.5% rise on their taxes.”
In his Summer Budget 2015, the Chancellor George Osborne announced that the current Dividend Tax rules are to be reformed and that from April 2016, new rules and rates will apply, bringing many more contractors and small business owners into paying dividend tax.
The Dividend Tax bands will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. The first £5,000 of dividends will not be subject to the new tax and the previous dividend tax credit basis will disappear.
"As the chart below show, individual business owners who pay themselves only £30,000 of their company's profits will pay an additional £1,653 in tax each year," continues Chaplin. "You can double or treble this if the business is run by a family or husband and wife team like so many small companies are."
ContractorCalculator can help hard-pressed family firms plan for the draconian tax hikes next year with two online interactive financial calculators:
- 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 in the tax year 2016/2017 as a result of the new rules.
- The Dividend Tax Calculator shows contractors and company owners how much Dividend Tax they will pay in a chosen tax year, now updated to include the the 2016/17 tax year. Depending upon the year chosen (use the "Advanced" option to choose tax year) either the existing dividend tax rules or newer ones will be used, to calculate tax liabilities.
Chaplin concludes: “If income tax or National Insurance Contributions (NICs) increased by 7.5% there would be a national outcry and the UK would become one of the most highly taxed countries in Europe. Yet is it acceptable to punish successful UK’s business owners, who generate 60% of all our country’s private sector employment.”
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