Directors due to pay more tax next year - Why?

The government announced in the Summer Budget that a dividend tax will be introduced from April 2016. This means that everyone gets a £5,000 tax free allowance so that investors holding modest share portfolios do not pay tax. Any dividend income above this level will be taxed at 7.5% for basic-rate taxpayers, 32.5 per cent for higher-rate taxpayers and 38.1 per cent for additional-rate taxpayers.

Don’t forget that your business will already have paid 20% corporation tax!

A bitter pill for many business owners that take a dividend as a reward for running a successful business and taking the business risk. There will be very little advantage in taking a dividend over receiving a salary.

So what’s the solution? Over the short term (9 months) your accountant will be able to maintain an efficient income stream. Most Directors want a long term solution so Intelligent Financial Planning is the real solution.

Directors need to be smarter about how they take their remuneration. The good news is that directors remain in charge of the way they get paid. This will allow them to design a tax efficient benefits package.

Directors have a significant portion of their wealth tied up in their business. Some will be tempted to leave money in their business to avoid paying the new tax. There are dangers in doing this.

The recent changes to pensions now allow Directors to shelter there wealth. Significant corporation tax savings are also available. A win/win situation for the over 55’s as the entire fund is available.

There has never been a more important time for Directors to get quality advice from an experienced financial planning specialist.