This month, Jack Posner (principal) and Darren Stone (manager) of Leon and Company Chartered Accountants in Leeds write about the upcoming tax year-end and how you can plan for it.
It only feels like five minutes ago since we were last asking our clients to start getting their records together in preparation for the tax year-end of 5th April. This year, we wanted to share with you a major piece of tax planning that applies to many business owners and should be considered before the approaching 2015/16 year-end:
Most taxpayers who own businesses, or have involved tax affairs, should usually consider a variety of tax planning measures each-and-every year-end, including – but not limited to – considering the timing of purchases of capital equipment, making tax-efficient charitable donations, dividend level reviews, ISA investments, etc. This year, of particular importance is the dividend.
From 6 April 2016, the rules around the taxation of dividends are changing. This is the result of an announcement last year which alters the landscape for business owners who use a limited company as a tax efficient vehicle to pay themselves a combination of salary and dividends.
From 6 April, dividends paid over £5,000 per year will attract tax. The rates will be set at:
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
Of course, if you own a small portfolio of shares and have no limited company involvements, then this may mean you could benefit from a tax cut due to the first £5,000 of dividends being covered by a new dividend-allowance.
However, for business owners, this is likely to result in an increase in the tax you owe, and as such, immediate action should be taken to benefit from the rules before they are changed at the end of this tax year. So before the 5th April 2016, you may wish to review your company’s profits to see whether you can vote an interim dividend now. In any normal year this would be a useful exercise anyway. But this is all the more important this year as it is the last opportunity to benefit from the outgoing rules.
Of course this is rather involved tax planning, but can be an extremely effective means to reduce your tax liability. As always, I strongly recommend you have a conversation with your accountant before making any decisions.