Budget 2017… Yes it’s that time of year already. Although there are a number of changes coming into place we’ve summarised a few of the most notable ones for small business owners.
Increase in national insurance
By now you’ve probably already read about or heard about the increase in national insurance for self-employed people. However, this does not affect directors of limited companies. You may see yourself as self-employed, but if you are the director of an owner managed company tax wise you are not.
Reduction to the tax-free dividend allowance
The tax free dividends allowance is being slashed from £5,000 to £2,000 from 6th April 2018. This means that any dividends received above £2,000 will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher-rate taxpayers and 38.1% for additional-rate taxpayers.
Since the end of the dividend tax credit system, the £5,000 tax free allowance was introduced in April 2016 and it has helped small business owners who pay themselves an income from dividends. Unfortunately, this has raised concern that many were using it to avoid income tax which has now led to the reduction in the allowance. However, income from dividends received from shares in a stocks and shares ISA will still be tax free.
This latest change means that the minimal salary/dividend structure which was so tax efficient for so long has changed out of all recognition. We don’t recommend that all directors of micro limited companies should rush to disincorporate. However, it’s worth remembering that the profits the dividends are paid out of have already been taxed at 20%. Therefore if you are a director with significant dividend income in the higher rate tax band and above it’s worth considering reevaluating your income and/or company structure.
Find out more about the 2017 Budget
You can find further information on the government website. With it being a hot topic of conversation you’ll also find a lot of coverage elsewhere about what it might mean for you and your business. However, we always recommend that you speak with a qualified professional in order to gain a true understanding of the impact it may have on you. After all, you may be getting stressed unnecessarily!
If you ever need our advice or guidance please get in touch on 01243 532 490 or email email@example.com. This blog was written by Monica Jervis, small business owner, founder of the Chichester Accountants and qualified accountant. If you’ve got any questions don’t hesitate to get in contact on Twitter, Facebook or Google+.
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