Mixed Budget News

melbury

westy22 wrote: »

Its not just PS companies though - almost all close companies (5 or fewer shareholders / directors) will be likely to have been paying themselves a minimum basic salary (around £8k or so) and then topped up with dividends.

Many small company owners will be adversely affected by this change.

Good - they should also be made to pay some NI;)

bigfreddiel

talexuser wrote: »

Ah!, of course, so if you don't reach the basic allowance you can get £6000 of savings interest before tax.

That's a one off for this tax year only 2015/16

And it's £5,000 not £6,000.

And you can earn over the tax allowance, then the £5,000 amount just reduces as your earnings increases until you reach £15,600

Cheers fj

bigfreddiel

kidmugsy wrote: »

Good point. It may be that HMRC have told him how few people get dividend income above £5k p.a. outside tax wrappers, except for those ps company people. I'm afraid those "few" may have to take it on the chin.

I must admit I don't yet know how, next tax year, the £5k allowance for dividends will interact with the £5k allowance for interest for low income people, and the £1k allowance for interest for 20% taxpayers. No doubt it'll be clear by ... autumn?

It's quite simple, £5k divis tax free, interest of £1k tax free and that's it.

The £5k interest tax free for earners near the tax allowance is for this year only.

Cheers fj

Apodemus

SnowMan wrote: »

It was previously on all unwrapped dividends (including the first £5,000)

0% for non-taxpayers
0% for basic rate taxpayers
25% for higher rate taxpayers
30.56% for additional rate taxpayers

I am having difficulty following this, so bear with me here!

When I fill in my tax return, the div is added to my salary to give my total income and this figure then has the tax bands applied to it.

Surely the effect of this is that I pay additional tax on the dividend, even if my top rate of tax is the basic rate?

masonic

Apodemus wrote: »

When I fill in my tax return, the div is added to my salary to give my total income and this figure then has the tax bands applied to it.

Surely the effect of this is that I pay additional tax on the dividend, even if my top rate of tax is the basic rate?

If your total income as calculated above falls below the higher rate threshold, then no, you wouldn't pay any tax on the dividends. If your dividend income takes your total income above the higher rate threshold then it is not correct to say that your top rate of tax is basic rate, only that the top rate of tax paid on your salary is the basic rate.

SnowMan

Apodemus wrote: »

I am having difficulty following this, so bear with me here!

When I fill in my tax return, the div is added to my salary to give my total income and this figure then has the tax bands applied to it.

No the tax bands are applied just to your salary, that is excluding dividends.

The dividend income forms an additional slice on top of your salary income and is taxed differently.

They check whether your salary + dividends (strictly speaking dividends including notional tax credit) are less than £42,385 for 2015/2016, the point at which 40% tax kicks in.

Provided it is below £42,385 then you then pay no further tax on your dividend income (a more complicated way of expressing this is that you pay 10% tax on the dividend income including tax credit but this is treated as being covered by the 10% notional tax credit so there is no further tax to pay)

kidmugsy

bigfreddiel wrote: »

The £5k interest tax free for earners near the tax allowance is for this year only.

Ye Gods and little fishes!

talexuser

bigfreddiel wrote: »

It's quite simple, £5k divis tax free, interest of £1k tax free and that's it.

I get it. Was confused by the pdf not explaining it comes from different sources of "interest", and the new 5k divi was the same figure as the low earner 5k interest now. Which I was not aware was superseded next year by the universal 1k interest!

However even more confusingly, next year you can apparently have a 2k savings limit if still below the limit for that year only.

And this is simplifying the tax system

kidmugsy

talexuser wrote: »

However even more confusingly, next year you can apparently have a 2k savings limit if still below the limit for that year only.

Eh? What? I'm baffled. I'll wait for the weekend personal finance supplements.

redux

kidmugsy wrote: »

Eh? What? I'm baffled. I'll wait for the weekend personal finance supplements.

The rate things are going, I wouldn't count on everything being crystal clear by this coming weekend.

MSE has already published then hidden an article about dividends (see currently adjacent discussion thread).