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Whitehill Business Services Ltd >> news >> latest news >> Changes to salary and dividend tax rules from April 2016

Changes to salary and dividend tax rules from April 2016

Posted by admin on January 19, 2016

tax_m.jpgApril 2016 sees the start of a major change to the way dividends paid out by companies are treated for tax purposes.  For small businesses, that means the way Directors receive income from a company many change; and with other changes affecting salary costs, such as the "holiday" for Employer National Insurance Contributions (NICs) , it's something all small business owners need to be aware of. 

So here's a brief summary of the changes which take effect in April 2016....

 

 

Changes to National Insurance Contributions

The Employers' NICs allowance ("employment allowance") is an allowance given to all employers to offset against their annual Employers' National Insurance liabilitiies. It is not a repayable credit.  From April 2016:

  • The employment allowance will increase to £3,000.
  • The employment allowance will not be available for companies where the director is the sole employee.
  • No employers' NIC is payable in respect of apprentices under the age of 25

Changes to the way Dividends are treated

The chancellor has replaced the dividend tax credit (representing 1/9th of dividends taken) with a new tax free dividend allowance of £5,000 per annum.  Once you’ve used up the £5,000 dividend allowance you will have to pay Income Tax on dividends of 7.5% for dividends in the basic rate threshold, 32.5% in the higher rate and 38.1% on upper rate earners (those earnings more than £150,000 per year).

Changes to personal tax allowances

  • The personal allowance rises to £11,000, the Basic Rate (20%) threshold to £32,000 and the Higher Rate (40%) threshold to £150,000
  • NICs changes means salary needs to be above £112/week (£5824/yr) to get benefits, and below £155/week (£8060/yr) to not pay Employee NICs contributions.  To not pay Employers NICs the salary needs to be below £156/week (£8112/yr)
  • Corporation tax is set at 20% on all declared profits.

 

As usual, we have more detailed guidance on the changes available - just get in touch.