Posts Tagged ‘Personal tax allowance’

Reduction to the tax-free dividend allowance – April 2018

Wednesday, July 18th, 2018

From 6 April 2018, the tax-free dividend allowance fell from £5,000 to £2,000. We’ve received quite a few questions around this so we thought it was worth reminding you about the reduction which was included in the Finance Act 2017.

From 6 April 2018, the dividend allowance (DA) taxes the first £2,000 of dividend income at nil, then:

  • 5% basic rate taxpayers
  • 5% higher rate taxpayers
  • 1% additional rate taxpayers

Dividends are taxed as the ‘top slice’ of income, once any general income (salary, business profits, pensions) and interest income have been taxed. These latter forms of income usually use up the personal allowance (currently £11,850 for 2018/19; £11,500 for 2017/18).

Most allowances operate on a ‘use it or lose it’ basis and can’t be carried forward for offset against future income. It is therefore important that from a tax perspective, individuals take advantage of these tax-free allowances and reduce their tax exposure wherever it is practical and possible to do so.

It’s also worth noting that the Basic Rate Band increased by £1,000 to £34,500 from April 2018.

We advise many owner-manager clients on dividend taxation and prepare the relevant dividend paperwork to ensure all Companies House & HMRC compliance procedures are met. Despite the reduction in the tax-free dividend allowance, it is always worth re-examining your tax affairs to identify any areas where savings can be made. Owner-managers of companies should certainly do this, along with a review of their pension contributions, given the changes to this area too.

The next Budget will take place this Autumn and we’ll bring you details of the key changes to taxation affecting individuals and SME businesses. In the meantime, take a look at our website to see how we can help you and your business.

To discuss your tax position and how the changes to the dividend allowance are likely to affect you, please contact [email protected] or call 01527 558539 for clear, up to date advice. HMRC website has more guidance on dividend taxation.

dividend alowance

Budget 2013 – Analysis of key issues

Tuesday, March 26th, 2013

Budget 2013 – A more in-depth analysis of the key points

Following our summary on Budget Day of some of the Budget highlights, we’ve taken a closer look at some of the issues most relevant to our clients and contacts. It’s also been interesting to let the dust settle in the last few days and gauge the reactions of a range of sectors.

Here are the announcements we fell are of most relevance from the ‘aspiration nation’ Budget :

Personal Taxation

It was with much delight that Chancellor Osborne announced he would be raising the tax-free personal allowance for those born after 5 April 1948 to £10,000 from 6 April 2014. Increasing the allowance to this level was a key aim of the Coalition on taking office and the Chancellor was under pressure to deliver on this measure in this Budget.

The higher allowance will not be increased for those born before 6 April 1948 and this enhanced allowance will be removed in the longer term.

Then came the not so good news for middle-income earners, which partially explains how the £10,000 allowance will be ‘paid for’…..the basic rate limit (after the personal allowance has been accounted for and above which people start to pay tax at 40%) will reduce to £32,010 from 6 April 2013 and then fall again to 31,865 from 6 April 2014.

It had been announced previously that the additional rate of tax on incomes above £150,000 would fall from 50% to 45% which is seen as a boost to the UK’s higher earners and entrepreneurs.

Tax-free Childcare Support

Details of a new scheme to encourage parents back to work by helping  cover childcare costs had already been announced the day before the Budget. However, it warranted another mention in the Chancellor’s speech in a move which will be welcomed by working families, especially those who have suffered the loss of their Child Benefit.

From autumn 2015, the government will provide up to 20% of the cost of childcare for each child below 5, up to a maximum of £1,200. The exception is disabled children with this financial provision available until the disabled child turn 16. The measure is designed to cover the vast majority of working families and is available to working parents each earning less than £150,000 per annum. We will provide further details once more information is available.

Corporation Tax Rates

Another key aim of the coalition has been to make the UK one of the most competitive tax regimes in the G20 through lowering the main rate of tax.

This Budget achieved that aim with the main rate of corporation tax reduced to 20% from 1 April 2015. From this date, the main and small companies rates will be aligned which removes the extra complications around marginal rates and associated companies (where a company’s chargeable profits fall between £300,000 and £1.5m in the year). A welcome piece of news for accountants when preparing the corporation tax computations!

Chancellor Osborne was keen to point out that this decrease in corporation tax will be paid for by an increase in the bank levy (which will increase to 0.142%).

 

Employment Allowance’ (EA) and Employment-Related Loans

The Chancellor asked businesses what would help them recruit more staff and his solution to their requests for NIC breaks was an ‘Employment Allowance’.

Available to all businesses and charities from April 2014, the EA will reduce an employer’s NIC bill by up to a maximum of £2,000. Over 90% of the benefit is expected to go to smaller businesses with 450,000 of the UK’s small businesses no longer subject to employer NICs.

Every business will be able to take one worker on a salary of £22,400 or four employees working full time on the adult National Minimum Wage, without suffering any employer NIC costs.

Administration of the EA is designed to be straight forward, with employers confirming eligibility through standard software and HMRC’s Real Time Information system and up to £2,000 in employer NIC liability deducted over the course of the year’s PAYE payments.

Employment-Related Loans

There will now be no tax charge where the total outstanding balance on a small loan from the employer does not exceed £10,000 throughout the tax year. Such loans include those where the rate of interest charged is less than the official rate of interest. It also covers notional loans, such as season tickets for rail travel.

This means that employers will no longer be required to report the loan on the P11D form, provided it stays below £10,000 for the year.

 

Statutory Residence Test (SRT)

From 6 April 2013, a new statutory residence test is to be introduced via the Finance Bill 2013 with a new definition for the tax status of individuals This follows an intense consultation which has been a grey area for advisors and HMRC alike, replacing all existing legislation, case law and guidance.

The SRT will apply to income tax, capital gains, inheritance tax for an individual but not national insurance. The SRT consists of:

  • automatic tests for non-residence
  • automatic tests for residence and a series of connection factors for those caught in between to determine status.

The new legislation will bring clarity over the treatment of income and gains earned by those who spend frequent periods abroad during the year. This is a welcome move given the increase in the ‘mobile workforce’

 

Help to Buy Scheme

In an attempt to help more people onto the housing market and boost the property sector Chancellor Osborne announced the launch of the ‘Help to Buy’ scheme, with the government providing an equity loan of up to 20% of the new property’s value.

The loan will be available to all, rather than just first time buyers and a 5% personal deposit is required. The property value must not exceed £600,000 and there is no cap on the amount of income earned by the loan applicants.

This sounds like good news for those struggling to raise the required finance for a property, either getting started on the housing market or moving up the ladder but with little equity accrued so far. Additional benefits to buyers of taking out a Help to Buy loan are that the loan is only repayable once the home is sold and is interest free for the first 5 years.

Critics of the scheme argue that it will benefit sellers more than buyers as it will push up house prices. The risk appears to lie with the government and there are concerns that it doesn’t create another property bubble.

The scheme is designed to be in place for three years and takes effect from 1 April 2013..

Budget 2013 – Personal Taxation

Tuesday, March 26th, 2013

It was with much delight that Chancellor Osborne announced he would be raising the tax-free personal allowance for those born after 5 April 1948 to £10,000 from 6 April 2014. Increasing the allowance to this level was a key aim of the Coalition on taking office and the Chancellor was under pressure to deliver on this measure in this Budget.

The higher allowance will not be increased for those born before 6 April 1948 and this enhanced allowance will be removed in the longer term.

Then came the not so good news for middle-income earners, which partially explains how the £10,000 allowance will be ‘paid for’…..the basic rate limit (after the personal allowance has been accounted for and above which people start to pay tax at 40%) will reduce to £32,010 from 6 April 2013 and then fall again to 31,865 from 6 April 2014.

It had been announced previously that the additional rate of tax on incomes above £150,000 would fall from 50% to 45% which is seen as a boost to the UK’s higher earners and entrepreneurs.

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Budget Highlights 2013 – Personal tax highlights

Wednesday, March 20th, 2013

Budget 2013 Highlights

Budget 2013 – A Budget for the ‘Aspiration Nation’

Chancellor Osborne hailed the UK an ‘aspiration nation’ and his Budget was designed to help those who wanted to work hard and encourage employment in the UK.

The economics in brief:

  • Chancellor confirmed the debt targets had been missed and he would be borrowing more than planned, although public sector net borrowing is forecast to fall by one third over the three years from 2009/10 to 2012/13.
  • Growth forecast was revised down for 2013 from 1.2% to 0.6% and 2% to 1.8% for 2014.
  • More subdued and uneven recovery than expected.
  • Budget designed to help those who want to aspire and work hard.

Personal taxation

In one of the most hotly anticipated announcements, Chancellor Osborne confirmed that the personal tax-free allowance would increase to £10,000 from April 2014, up from the 2013/14 allowance of £9,440.

However, some of this has been clawed back by the reduction of the basic rate personal tax threshold from £32,010 in 2013/14 to £31,865 from April 2014. The higher rate threshold will increase slightly from £41,450 for 2013/14 to £41,865 for 2014/15.

Statutory Residency Test

A statutory residency test is to be introduced via the Finance Bill 2013 to introduce a new statutory definition of the tax residence status for individuals. Previously this has been difficult area to advise, the new rules will bring clarity which with a more mobile workforce and employment in various countries during a tax year will bring certainty on income and gains for individuals.

Childcare

The Chancellor reminded us of the measure announced yesterday providing 20% tax relief of up to £1,200 per child towards the costs of childcare. Conditions are that both parents must work, not receive support through tax credits and neither parent earns over £150,000 pa. It is expected that this scheme will be open to around 2.5 million working families in the UK.

Pensions

From 2014/15 the annual allowance will reduce to £40,000 pa with the lifetime allowance reducing to £1.25m. This is a better than expected result given the rumours that the annual allowance would fall to £30,000! The measure is designed to rebalance the amount of tax relief benefitting higher earners.

Seed Enterprise Investment Scheme

The scheme is to be extended for capital gains tax in gains accruing in 2013-14 which are reinvested during 2013-14 or 2014-15. The relief will apply to half the qualifying amount re-invested..