New Dividends Tax Regime

11 December 2015

The summers Finance Bill received Royal Ascent and became Finance Act 205 (No.2) on 18th November 2015, this included the new rules for the taxation of dividends.

From 6th April 2016 the taxation of dividends is completely overhauled. There will be a new tax-free dividend allowance of £5,000, then to the extend dividends fall within the basic rate tax band they will be taxable at 7.5%, dividends within the higher rate band will be taxed at 32.5%, and finally those within the additional rate band will be taxed at 38.1%.

The new tax-free Dividend Allowance of £5,000 has turned out to be far less generous than purported in the chancellor’s initial announcement.  It was initially understood to be a tax free amount that would not affect your personal allowance and tax bands, unfortunately that turned out to be incorrect.

The tax free dividend allowance is in fact a nil rate band for dividends, still counting towards your taxable income, just taxable at 0%.

Dividend income is still deemed to be the top slice of your income, but the first £5,000 of dividends simply attracts a 0% rate of income tax.

The new dividend tax regime will affect the remuneration strategy for all businesses operating via limited companies, if you have not already done so you should work with your advisor to ensure you are still remunerated in the most tax efficient manner once the new rules come in.

TT Intelligence is a young, dynamic firm who embrace the idea that detailed information is key to making the right decisions about your tax affairs. Our consultants have been working in the tax and accounts industry for over 20 years, their extensive knowledge and expertise, coupled with a jargon-free approach, makes guiding clients through the complexities and technicalities of their tax affairs straight forward and efficient.

If you require any assistance with any aspect of your tax affairs please contact us or get in touch today by calling 0203 039 3993.

Intermediaries & the New Travel & Subsistence Rules

11 December 2015

On 9th December 2015 the long awaited draft legislation was published in respect of tax relief on travel and subsistence costs for workers who provide their personal services through employment intermediaries.

Under the new rules if payments are made or reimbursed to a worker for travel and subsistence costs then the payments must be subjected to income tax and national insurance as if they were earnings from employment.

Further, there will be no entitlement to tax or national insurance (NIC) relief for the travel and subsistence costs of the worker.

From 6th April 2016 a worker who provides their services through an intermediary (recruitment agent, umbrella company, personal service company, or similar) will be subject to the new rules if:

  • The worker personally provides services to another person (the client) and these are not excluded services, and
  • The services are provided not under a contract between the client and the worker but under arrangements involving an employment intermediary.

The new rules will not apply if the worker is not subject to Supervision, Direction of Control (SDC). However, SDC is assumed unless it can be shown otherwise.

What is required to demonstrate a worker is not subject to SDC is unclear, some sort of documentary evidence will be required. If HMRC decide that this documentary evidence is fraudulent then the liability for unpaid tax and NIC falls upon the person who provided the document.

Personal service companies that are not caught by IR35 are also not subject to the new rules. However, it should be noted that there are proposals to widen the scope and improve the effectiveness of IR35 in the very near future.

Powers have also been introduced that enable HMRC to enforce recovery of any unpaid amounts of tax or NIC arising from a failure to apply the new rules by a company from a director or officer of that company.

The new rules are just a few months away so if you work through any kind of intermediary you need to take steps now to work with them to either (1) ensure there is sufficient documentation in place to demonstrate you are not subject to SDC, or (2) renegotiate rates with the client to ensure you are not out of pocket when your tax relief is withdrawn.

If you operate through a personal service company you should ensure your contracts and working practices are regularly reviewed to ensure they are not caught by IR35.

For further information please contact us on 0203 039 3993.

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