By Hayley Robins, Senior Accountant at Hive Business

The recent Budget update will affect small business owners just like you. For every single business owner, who operates through a limited company in the UK, it was detrimental. One of our senior accountants, Hayley Robins,  takes you through the changes in the way your dividends are going to be taxed.

What are the changes?

We’ve all heard snippets on the news about the Summer 2015 Budget and how the Government are doing great things; like reducing the Corporation Tax rate by 1% to help us all. However, one major change that hasn’t been publicised quite so much, but will affect just about every business owner that operates a limited company, is the increase in the dividend tax rate.

Previously, individuals could receive around £30k from their company tax-free. The changes that will come into effect in April 2016, will hugely reduce the tax free amount to £5k, with anything above this being taxed at a minimum of 7.5% (increasing to 32.5% and 38.1% depending on your level of income).

What do the changes mean for you?

While this may seem like a bundle of confusing percentages and stuff that your accountant deals with, it will have a very real cash impact for owners of limited companies.

And, if you have a husband and wife shareholding set-up, your taxes will increase by minimum £3,600 p.a. Whilst the changes don’t mean that companies are no longer tax efficient, the tax savings previously obtained from operating as a company have been substantially reduced.

For those of you who still have a meaty Directors Loan Account, admittedly the impact of these changes will not be as harsh. What can you do if you have consumed your Directors Loan Account or you just want to keep the balance for a rainy day? Sadly, it is our experience that many accountants have been empty-handed with strategies and tactics for when the director’s loan account runs out.

Can you do anything about this?

Yes, you can. The changes don’t come into effect until April 2016, so you have time to be proactive and take action.

I am pleased to say that we have a number of techniques and options we have been accumulating over the years, that are completely unaffected by these rules. The most important aspect is to digest the forthcoming change, take action and speak with us.

Call us on 01872 300232 or email us at hello@hivebusiness.co.uk.