Member Article

Dividend tax will be a "bombshell" - Garbutt + Elliott

Yorkshire business owners and investors must plan ahead to counter wide-ranging changes to the tax on dividends next month, warn leading Yorkshire accountants Garbutt + Elliott.

There are just under two weeks left to mitigate potential losses before changes to the dividend tax come into force on April 6.

Rob Durrant-Walker, tax specialist with Garbutt + Elliott, who have offices in York and Leeds, commented: “Whilst the Chancellor George Osborne is honouring his promise not to raise the headline rates of personal tax and national insurance, he is hitting owner-managed businesses.

“The introduction of the significantly higher tax on dividends, announced in the Autumn Statement last year, will hit many owner-managed companies hard. It was a bit of a bombshell at the time and now the harsh reality will start to hit home.

“The increased tax rate on dividend income, set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers is equivalent to an increase of 7.5% where dividend income exceeds £5,000. Many small owner-managed businesses may have to pay thousands more a year in taxation, which will be accounted for via self-assessment.

“Those affected could consider bringing forward 2016-17 dividends to pay them before April 6, unless the extra income itself pushes them into a higher tax rate,” added Mr Durrant- Walker.

Meanwhile Mr Osborne’s latest Budget announced a corresponding impact on companies.

Mr Durrant-Walker explained: “Where a “participator” (in most cases a director-shareholder) owes their company money at the year-end in a Director’s Loan Account, then currently a company has to pay 25% of it to HMRC as part of its corporation tax bill. The company can eventually reclaim it after the loan has been repaid to it. Following the Budget, this rate will increase from 25% to 32.5%.”

He added: “These are complex changes, which haven’t really received the publicity they deserve, given the impact they are going to have. Any company owner, manager or director, who isn’t sure of how they are going to be affected, should seek advice as soon as possible.”

For more information, please contact Rob Durrant-Walker on 01904 464119 or at rdwalker@garbutt-elliott.co.uk

This was posted in Bdaily's Members' News section by Robert Beaumont .