limited companies Articles

New National Minimum Wage regulations will take effect on April 1st and all employers will be required to meet them.

The National Living Wage will apply to employees aged 25 and over and it will essentially mean that employers will have to pay their staff an extra 50 pence per hour, with the rate set at £7.20.

The requirement could put many small and medium sized business owners in a difficult position, particularly if they operate in the margin-conscious retail sector or employ a lot of minimum wage employees.

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. 

The way that dividend income is taxed for company owners is changing in April. The abolition of the Dividend Tax Credit and the introduction of a tax-free Dividend Allowance will have positive or negative consequences depending on your situation.

It is important that you are aware of – and prepared for – the upcoming changes.

For many small and medium sized company owners, receiving dividends tends to be a more tax efficient means of income than receiving a salary. But this advantage will reduce after April. 

Christmas is just around the corner and while limited company owners are all a bit old to be sending letters to Santa Claus, we thought we’d draw up a different wish list – one for the chancellor to read before his Autumn Statement.

1)     Reappraise the dividend tax changes  

From April 2016, changes to the rules governing dividend tax payments will make lots of limited company owners worse off.

The changes affecting limited companies will see the notional 10% tax credit on dividends abolished and replaced with a £5,000 tax free dividend allowance. Over this threshold, dividends could be taxed at a rate of up to 38.1% (for additional rate payers).