What are your thoughts on the SummerBudget2015?

Jawz

In summary-I think yesterday's budget will do a bit more for working families, less for small business. However, some great headline grabbers for small businesses, especially for corp tax and employer allowance bits. I think there are also some potential opportunities for councils and small biz re: Sunday trading. Overall, in my view, a sound budget but obviously I understand not everyone will agree with that sentiment

Gem7321

I'm struggling to understand why everyone is in such a spin with the dividend rates. I've done some crunching and I just don't get it! I've based calculations on a self-employed profit of £50,000 before PA, £100,000 and £30,000 and in every scenario the individual has more 'take home' pay being a ltd. I think I must be missing something blindingly obvious.

The IPT increase was surprising for me.

jamesm96

Gem7321 said:

I'm struggling to understand why everyone is in such a spin with the dividend rates. I've done some crunching and I just don't get it! I've based calculations on a self-employed profit of £50,000 before PA, £100,000 and £30,000 and in every scenario the individual has more 'take home' pay being a ltd. I think I must be missing something blindingly obvious.

The IPT increase was surprising for me.

Isn't it just that, although they're still better off running a Ltd company, they're worse off than they were under the soon-to-be 'old' rates and tax credit..? Somebody who draws a dividend of, say, £30,000 (assuming only other income is basic salary) would previously have paid no Personal Tax, whereas they'll now pay 7.5% on £25,000 of that dividend; they're £1,875 per year worse off.

Gem7321

I disagree, lets say the gross dividend is £30k they would 'take home' £27000 of the dividend under current rules. Under the new rules, they would 'take home' £28125 (assuming there is £30k in reserves).

If the net dividend was £30k, under the current rules they would have £348.38 tax to pay (based on BRB of 31785) so would effectively take home £29561.62. Under new rules they would have £2125 tax to pay but they would take home £31208.33 because the actual dividend would be £33333.33 (again assuming this is available from company reserves).

So I still think I must be missing something? I feel like people are forgetting that the individual is assessed on the grossed up dividend but this will no longer apply with the current rules?

Gem7321

Exactly, the grossing up will no longer apply, so the individual can be assessed on the same amount of income but will be better off according to my calculations above? I appreciate there is an element of 'double-taxation' (as there always has been with dividends which have already been taxed at eg. 20% but tax credit only 10%) but the individual is still better off at these levels around £30k.

burg

From my calcs I have found that you are still better of being a Ltd Co than a ST up to around £65k of taxable profits (as a ST).

The part thought that hurts is those existing Ltd Co's who on average will be around £2k worse of in terms of tax paid when considering CT and withdrawing all posible profits.

For those who were limiting income to the BR threshold to avoid paying any personal tax the takehome will be higher, due to the previous effect of the net v gross dividend, by around £2k after tax is taken into account.

Overall in most circumstances it still makes sense to incorporate it just doesn;'t save as much tax as it did before.