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It can’t have escaped your notice that it was the budget this week.
As well as crunching the numbers so you don’t have to, we at CEJ have been busy looking for some nuggets of joy for contractors and this is what we’ve found.
Alcohol duty has been frozen for another year
Cheers! The sugar tax means it’s not such good news if you’re a fan of JD and coke but for most of us it’s reason to celebrate.
Fuel duty has also been frozen
More good news for those of us who like to get about a bit (even if you go everywhere by bus). Thanks, George!
There’s a fighting chance we might win the World Cup again eventually
….if schools use the extra hour in their day to teach kids how to play football properly. Result!
Seriously, though, despite the chancellor’s refusal to back down on the dividend tax –
which will come into effect on April 16 and for most contractors will mean paying 7.5% tax on a chunk of earnings up to the threshold of the higher rate of tax – there are some reasons to be cheerful.
If you’ve not read Bryan’s guide to the dividend tax – last year’s “A Kick In The Teeth for Contractors” then you can do so here. Otherwise, read on…
The replacement of dividend tax credits with £5k tax-free dividend allowance and changes to the dividend tax rates is a blow for contractors using a limited company. At the moment, if you have basic rate earnings then the 10% dividend tax is cancelled out by the 10% dividend tax credit so there is no personal tax to pay.
BUT the changes will mean that while the dividend tax drops from 10% to 7.5%, the 10% dividend tax credit has been scrapped and replaced by a £5k allowance.
So, whereas previously there was no tax to pay on basic rate dividends, there will now be 7.5% to pay on all dividends over £5k per tax year. For contractors taking the maximum basic rate earnings of £43K next year this will mean around an extra £2k in dividend tax. This is a big change for contractors who currently pay nothing or very little through personal tax returns.
The personal allowance is to increase from £11,000 in 2016-17 to £11,500 in 2017-18.
This will allow us to increase the tax efficient salary and save every client £100 per year.
The threshold for higher rate tax will increase to £45,000 in 2017-18.
This change will allow clients to take an extra £2,615 in earnings from their limited company without entering the higher rate of tax.
From April 2017, the government will make public sector bodies and agencies responsible for operating the tax rules that apply to off-payroll working through limited companies in the public sector.
A major change affecting public sector workers (NHS, BBC etc), but the rules will remain unchanged for those working in the private sector.
The rate of Capital Gains Tax (CGT) from 6th April 2016, has been reduced
from 28% to 20% for higher rate tax payers. Basic rate band tax payers will change from 18% to 10%. This does not apply to gains made on the disposal of residential properties, so will only affect contractors who have significant assets held in their company.
As a CEJ client, the best news is that you can rest assured that we will work all the above changes into ensuring that you take home the most tax efficient mix of salary and dividends.
We will update your bookkeeping software so that the new dividend tax is taken into consideration when working out how much tax you owe and how much you can take as earnings from your limited company.