dividend tax Articles

How much will the dividend tax rise cost contractors

The government has announced several tax increases on contractors and employees as it looks to bridge the funding gap in health and social care.

From April 2022, National Insurance Contributions (NICs) for employees and employers will increase by 1.25% along with a matching increase in the tax paid on dividends.

The Chancellor. George Osborne, will deliver his Autumn Statement on 25th November 2015 and rumours have just been leaked that he is considering sweeping changes that will adversely affect UK contractors.

The Autumn Statement is in effect a mini budget.

Contractor One Month Rule

Over the weekend there were various reported leaks that The Chancellor is considering a new rule that would mean contractors who take a contract longer than one month would have to be paid PAYE by their end client after just one month. It is unclear if it would be from day 1 if it was known at the start that the contract would be for more than one month.

Dividend Tax is changing from April 2016 so now is the time to plan if proposing additional dividends in March 2016 could save you money.

From April, dividend tax credits will be abolished and a new taxation method brought in starting at 7.5% on all dividends over £5,000. Currently basic rate tax payers have no additional tax to pay on dividends received.

For higher rate tax payers the effective rate will rise from 25% to 32.5%. For additional rate tax payers the effective rate rises from 30.6% to 38.1%.

This means that in most cases there will be a rise in personal tax for contractors drawing dividends through a limited company and tax.