Accounting

Over the last few years, the tax climate for owner managers has changed considerably. I have often been asked if it is better to receive a salary/bonus or a dividend. Bear in mind that companies pay tax at 19/25% and dividends are paid after deduction of company tax and tax on a dividend is in addition to corporation tax.

The effective tax rate for a basic tax rate dividend is 27.75% (8.75+19) rising to 64.35% (39.35+25).
Personal; tax is 20% at the basic rate and rises to 40 and then 45%.
National insurance is:
Employers 13.8% but is allowable against company profits.
Employees 8% up to £50,270 then 2%

Back in 2016/2017 dividend allowance was £5,000.
In 2018/19 this fell to £2,000
In 2023/24 it fell again to £1,000
And in 2024/25 to £500

No tax is payable on dividends within the dividend allowance.

How dividends are taxed:

8.75% if total income falls below the basic rate of £50,270
33.75 if total income exceeds £50,270 and below £125,140
39.35 if total income exceeds 125,140
Remember personal allowance diminishes after £100,000 and is Nil after £125,140.

Ignoring personal allowance and employers NI of 13.8%, the rough comparisons are
Dividend Salary
Basic27.75%28%.
In between33.75%42%
Higher rate64.35%47%

Need more information or looking to get help from your local hackney accountants? Get in touch with us and we’ll be glad to assist.

Looking for information regarding IR35? Before April 6th 2017 Personal Service Companies were responsible for deciding if they were caught by IR35. As specialised Hackney accountants, we’ve gathered the following.

From April 6th 2017 the responsibility for assessing personal service companies for IR35 was moved to Public Bodies from the personal service company.

From 6th April 2020 medium and large companies will now take on this role and review the personal service companies that they contract to decide if they are caught by IR35.

To date the accuracy of the decisions made by the Public Sector is questionable. Will this improve with the private sector given the time pressures and lack of expertise involved?

If trading through a company whether you have been deemed by a Government department to fall under IR35, or you are making the decision yourself as the contracted company there are four main tests to consider:

• Control.
• Mutuality of Obligation (Can work be turned down).
• Can a substitute be supplied?
• Do you have Insurance.

The more tests that are passed the stronger the case for not being caught by IR35.

Even if you are not facing an arbitrary decision by the employing company, HMRC is and has been reviewing small companies with IR35 in mind for a considerable time.

For those companies and people caught up in this, the situation can be both traumatic and expensive. The case of Christa Ackroyd has made headlines because of her high profile and the amounts of tax claimed. In her case the Press says she was advised by the BBC to set up a company.

We understand that recently HMRC has stepped up its activity in the IR 35 area leading to more investigations and cases.

It appears that the television industry has been targeted and they are moving on to the Dental Industry.

Need more information or looking to get help from your local hackney accountants? Get in touch with us and we’ll be glad to assist.

Just a quick reminder that from 6th April 2020 the payment window for Capital Gains Tax or CGT on Rental Domestic Properties, Second Homes and Overseas Houses and Flats will drastically shorten. As specialised Hackney accountants, we’ve gathered the following.

As of now gains are declared on the self-assessment tax return and paid the following January.

From 6th April 2020 CGT must be paid within 30 days of completion. This will mean, apart from the effect on cash flow, that a return will have to be submitted for every property sold. No return will be necessary if no tax is due.

Micro Entrepreneurs Relief

This came into effect on 6th April 2017 and is an exempt allowance of £1,000 against trading income.

For example, if John earns £1,000 on a side-line with little or no expenses (less than £1,000) he can claim expense of £1,000 making no profit.

If the gross receipts are in excess of £1,000 the he can claim Partial relief. Again, for example, If he earns £2,500 with say £500 expenses he would have an actual profit of £2,000.

However, if using Entrepreneurs relief, he can claim Partial Relief of £1,000 giving him a taxable profit £1,500.

Need more information or looking to get help from your local hackney accountants? Get in touch with us and we’ll be glad to assist.

Residential Landlords need to be aware of the changing rules with regards to the treatment of Interest on loans for Residential properties. As specialised Hackney accountants, we’ve gathered the following.

Up until 5 April 2016 Interest on loans for Residential properties could be offset against the Rental income of Residential properties in the same way as any other expense.
In 2016/2017 tax year the Government changed the rules for offsetting interest on Interest on loans for Residential properties against Income.

Gradually over the next 4 years the amount of the interest that can be offset will reduce by 25% a year.

The disallowed element in

• 2016/2017 will be 25%,
• 2017/2018 will be 50%
• 2018/2019 will be 75%
• 2019/2020 will be 100%

The disallowed element will be allowed to be offset against the tax liability as a tax reducer at a rate of 20%.

This will clearly affect people on 40% or more tax rates as well as pushing more people into the higher tax rates.

Furthermore, the higher taxable income could have implications if claiming benefits.

Need more information or looking to get help from your local hackney accountants? Get in touch with us and we’ll be glad to assist.