Dividends reform
The 2016-17 tax year brings about a new regime for the taxation of dividends. The tax credit has been abolished and new higher rates of tax on dividends apply. To soften the blow slightly, a new £5,000 dividend allowance has been introduced. This could present an opportunity for owner managed care businesses which should look to ensure that both spouse’s allowances are utilised where possible. We have ideas on how to optimise the tax position!
Personal savings allowance
From April 2016, a new personal savings allowance is introduced, exempting £1,000 of interest income from tax for basic rate taxpayers and £500 for higher rate taxpayers. Those paying tax at the additional rate will not receive an allowance. Banks are no longer required to deduct tax from interest at source. However, for the time being care operators will still be required to withhold tax when paying interest to individuals. So unfortunately, for now, CT61s still need to be completed.
Directors’ loan accounts
Depending on the circumstances of the individual, as described above under ‘personal savings allowance’, as well as the existing £5,000 ‘starting savings rate’, interest on directors’ loan accounts may no longer be subject to income tax. Directors may want to look at charging interest on their loans where they haven’t historically done so, or check that the interest rate is set at an appropriate level to ensure they are maximising this allowance.
Making tax digital
There has been a lot of press about digital tax accounts and the end of the tax return for self assessment, with a move towards quarterly reporting. However, in the latest roadmap from HMRC, they have also confirmed that this move will not be restricted to individuals. By 2020 it is expected that digital accounts and quarterly reporting will also apply to corporation tax and VAT.