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Company Owners To Pay More Tax!

For small owner-managed Limited Companies, a Tax efficient Profit Extraction policy has always been key. By selecting the use of the correct method of extracting Profits from the Company, Tax bills can be minimised. One such popular, and tried and trusted method, has been the use of Dividends rather than Salary, paid to the owner-managed Businessman.

But, as the old Yorkshire phrase would say “there is trouble at mill, lad”. This is all due to the announcement made in the 2015 Summer Budget to include a change to how Company owners will be taxed on Dividends they receive. The proposed changes are due to come in with effect from April 2016, i.e. Tax year 16/17.

Now as we all appreciate, not all Company owners have the wealth and lifestyle of a Premiership footballer (Wayne Rooney on £250,000 per week at Man Utd, and they still play boring football!), or the earnings of an X-factor contestant, (From my reliable sources, One Direction are easily the top earners here, with second place apparently going to Little Mix. Rather surprisingly, and this is according to my missus, so it must be right, One Direction did not actually win X-factor they only finished a measly third! – Not bad for finishing third. – what Man Utd would give to finish third in the Premier League this year?).

But going back to this new Dividend Tax, rest assured, the impact of this new Dividend Tax will certainly mean less money for the Businessman, with the Taxman taking a larger slice from the small owner-managed Limited Company.

What will this new Divi Tax mean? – basically as from 6th April 2016 there will be an extra 7.5% Tax to pay if you receive Dividends from your Company of more than £5,000 per year. At the moment there is no extra Tax payable on Dividends you receive unless you become a higher-rate 40% Taxpayer.

As an example, on Dividends received of £30,000, there will be extra Tax payable of £1,875 for the Tax year 16/17 in comparison with the current Tax year of 15/16. Now to small owner-managed Limited Companies that is as welcome as ‘The Apprentice’ contestants hearing Alan Sugar issuing the dreaded words of ‘You’re Fired’.

However, at JCL (Jones Cooper Limited) we are currently working on Tax Planning angles Limited Companies may wish to consider, to reduce the impact of this additional Tax. We will be contacting all Clients who may be affected by these new rules to provide them with further options and advice on the action they can take before the 6th April 2016.

If any Businesses wish to discuss any of this further with me, then please contact me.

Rickey

Rickey Cooper FFA, FMAAT, ATT

JCL – Jones Cooper Limited

 

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