The Spring Budget was a generally gloomy one for business owners. What changes were announced and how might they affect you?
Dividends. The dividend allowance (DA) of £5,000, introduced on 6 April 2016 will be slashed to just £2,000 from 6 April 2018. When first announced the DA was viewed as a sop to lessen the blow of the 7.5% across-the-board rise in tax rates on dividends.
Attack on owner managers. The higher rates were especially aimed at director shareholders who take their income a low salary, topped up with large dividends. Cutting the DA was an easy target for the Chancellor.
Anyone receiving dividends of £5,000 or more per year will be worse off by up to £1,140.
No escape. There’s no means for you to avoid the higher tax unless you reduce the dividends you receive below £5,000 per annum. However, even with the reduction in the DA dividends remain the most tax-efficient way to take income from your company.
NI up for self-employed. The initial announcement of the class 4 NI increase has now been withdrawn 🎉 🎉 🎉
Consultations. The Chancellor (again) announced a call for evidence to be followed by HMRC consultations in respect of the valuation of employee perks and expenses. This can only mean bad news for employers, directors and employees. However, we don’t expect the consequences to have an impact before 6 April 2019 and in the meantime we’ll keep you informed of developments.
The dividend allowance will be cut to £2,000 from 6 April 2018. This will cost shareholders up to a further £1,140 tax per year. The Class 4 NI rate will rise by 2% resulting in up to £600 in extra charges for the self-employed.