Summer Budget: Dividend tax reforms and small companies, reports from Sudbury based accountants, TaxAssist
17th August 2015
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Gary Perrins, owner of Sudbury based accountants, TaxAssist, answers some of your questions on this Summer's budget


My wife and are run our own company. We take a small salary and the rest of our money out as dividends. We’ve been hearing rumblings about some changes that were in the Summer Budget regarding how dividends are taxed. Will they affect us?  


Thanks to the effect of a notional 10 per cent tax credit, the “effective” tax rates on dividend income is 0 per cent in the basic rate band, 25 per cent at the higher rate and 30.56 per cent in the additional rate band.

But under proposals announced in the Summer Budget, from April 2016 dividend income over £5,000 a year will be liable for tax at the basic rate of 7.5 per cent, 32.5 per cent for the higher rate and 38.1 per cent for the additional rate.

I assume virtually all of your income is from the company and is all taxed within the basic rate band.At this stage, the proposed changes have not been legislated and there is still very little detail surrounding how the dividend allowance will be operated.

But based on some assumptions, it looks like if you were to continue with your remuneration package as it is, it might cost you in the region of £1,700 each in personal tax under the proposed regime. Under the current system, you’ve probably not been paying any personal tax because it’s covered by the tax credit so you will need to factor this in to your budgets and make sure you put aside enough to cover it. Operating as a limited company should still be more tax efficient for you, but it won’t offer quite the same tax savings it used to.



Is it true that the rent-a-room allowance was increased in the Summer Budget? 


‘Rent-a-room relief’ allows you to let out furnished accommodation in your home, tax-free, subject to a threshold. The threshold is halved if you share the income with your partner or someone else. The relief is open to anyone renting out room (i.e. a room or even an entire floor) in their home; whether they own the property or not. It is therefore available to people running bed and breakfasts and guest houses.

In the Summer Budget, it was announced that rent-a-room relief would finally increase next year. After 18 years of being at £4,250, it will increase to £7,500. At this stage, the proposed changes have not been legislated and there is still very little detail surrounding how the dividend allowance will be operated.



I’m self employed and I still have prepared my accounts yet, which I needed for the renewal of my Tax Credits. What should I do?


For most self employed people, their accounts and tax return are necessary in order to complete the majority of the boxes on their Tax Credit renewal pack. All Tax Credit claimants must renew their claim every year, by 31st July.

If you have not completed your accounts and tax return, you could complete the renewal pack using temporary, estimated figures. But you must update the Tax Credits Office with actual figures once you have drawn these up and it’s better to do this as soon as possible. Otherwise, you could risk being under- or overpaid for a long time, which in either instance would put a strain on your cashflow.


I completely forgot to pay my July tax bill. What will happen?


The payment due in July is like an “instalment” for next year’s tax. HMRC will use your circumstances last year as a basis for setting these.

As you have missed the deadline, HM Revenue & Customs (HMRC) may now charge you interest on the amount due until the date you eventually pay it.

If you are struggling to pay, you could phone HMRC and ask if they could arrange a payment plan for the outstanding balance. They tend to prefer the tax not to be overdue already though, so this may not be too successful.

Alternatively, you could prepare and submit your tax return. This will then trigger the calculation of your actual tax bill, which will then be compared with these instalments (called Payments on Account).

If you would like to discuss these or any other matters, Gary will be happy to help. Please call him on 01787 699141

About the Author

Penny W

Member since: 17th March 2014

Hello! I'm Penny from thebestof Sudbury, shouting about the best local businesses from Hadleigh through the Clare. When I'm not doing that, you'll find me knitting socks or tending to my 6 chickens

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