Don’t forget the tax man’s “Christmas present!”
We’re being reminded that recent changes to personal tax mean that many directors of businesses who take their money in the form of dividends will face a tax liability for the first time early in the new year.
Previously a basic rate tax payer effectively received their dividends tax free.
Now the first £5,000 is taxed at 0% and the remainder (up to the higher rate) at 7.5%.
For higher rate tax payers the effective rates have increased from 25% to 32.5%.
Under self assessment, an individual makes tax payments in January and July equal to half of the previous year’s tax liability with any remaining tax due the following January.
Payments on account in January and July 2017 for many individuals were not required because they had no tax liability for 2015/16.
These individuals therefore need to pay all their tax for 2016/17 in January 2018 together with a payment equal to half their 2017/18 liability.
Local accountant Chris Bentley explained: “We have seen many instances where an individual who has not previously had to pay personal tax, and who has had no change in income, has a liability of as much as £2,500 due in January 2018.
“More positively, it is worth remembering that from April 2017 the rate of corporation tax was reduced to 19% and is set to reduce further to 17% in 2020, which will provide a small saving for businesses.”
It is advised that you discuss your own tax liabilities with your accountant.