1. the
A C C O U N TA N T S & TA X A D V I S E R S
www.lowtax.co.uk
®
Budget 2015
£3,750 a year
worse off!
The cost to the Entrepreneurial Family Business
Whilst I understand, and to a certain degree accept some of the austerity measures introduced by George
Osborne in Wednesday’s budget, I can’t help but think that with some of his policies, he is targeting the
wrong people. Namely the Entrepreneurial Family Business Man who was until a few years ago, the type of
person who was supposed to help Britain climb out this economic mire.
Who is this person?
Well he is 40 something, with his own small business, which is successful and making a profit for him of
around £80,000 a year. He is married and currently has two children of 4 & 6. They are both shareholders in
his company, and despite a small part time job, his wife doesn’t earn anything, but is a shareholder in the
family business and paid dividends out of the profits. He and his wife are currently in the throws of deciding,
with business being relatively successful, whether they try for one more bundle of joy. Sound familiar?
Let us first start with the main change, that seemed have initially sneaked under the radar of all the budget
headlines, the changes to dividend tax.
Under the current regime, and running up to April 2016, dividends are paid with a notional 10% tax credit, so
for every £1,000 of dividend income received it is assumed that £111 in basic rate tax has already been paid,
making the gross dividends £1,111. Dividends received falling in the basic rate tax band are taxed at 10%, and
as such, there is no further liability for basic rate tax payers.
Under the new regime, starting 6 April 2016, all tax payers will receive a dividend tax free allowance of
£5,000 a year, but dividends will no longer carry a notional tax credit, and will now be taxed at 7.5% if they
fall within the basic rate band. For higher rate and additional rate tax payers, the rates of tax are 32.5% and
38.1% respectively.
So what does this look like on paper?
Current Regime
Net Dividend Tax Credit Additional Tax Cash in Hand
Basic Rate Taxpayer £1,000 £111 £0 £1,000
Higher Rate Taxpayer £1,000 £111 £250 £750
Additional Rate Taxpayer £1,000 £111 £306 £694
New Regime
Net Dividend Tax Credit Additional Tax Cash in Hand
Basic Rate Taxpayer £1,000 £0 £75 £975
Higher Rate Taxpayer £1,000 £0 £325 £675
Additional Rate Taxpayer £1,000 £0 £381 £619
2015

2. So for our family, who are taking a small notional salary and £30,000 of dividends each, which currently keeps
them within the basic rate band, as of next April they are going to be worse off by £3,750 per year.
Or to put it in to even more context, now have to find and extra £312.50 per month, or £10.27 per day just
to maintain their current standard of living.
And how has the Chancellor decided to balance this?
By cutting Corporation Tax rates.
A 1% reduction to the lower rate of CT will be introduced, but this will be a full year after these proposed
dividend changes come in effect. A further 1% will then follow the year after that.
So his company, that is making £80,000 profit, which equates to £64,000 after tax, will now have an extra
£800 in its reserves to distribute in 2017/2018 and an extra £1,600 from 2018/2019 onwards.
Well thank heavens for that...
And there’s more...
Of course we are ignoring the increase in Insurance Premium Tax, the stealth tax Gorgeous George carefully
dropped in. This will have knock on effects to your household bills each month, with your home & contents,
building and motor insurance policies all going up.
So darling, with our disposable income reduced by £312.50 per month, our household and motoring costs
increasing and me needing to work harder and longer in order to find the extra cash, do we try for that third
child?!
How we can help
If this situation seems familiar to you, or you are concerned about how the changes to the dividend legislation
is going to affect you, please contact one of our team on 01277 314000 so that we can look at your position
and explain some of the options that might be available to you.
the
A C C O U N TA N T S & TA X A D V I S E R S
www.lowtax.co.uk
®
Billericay • Basildon • Chelmsford • Harlow • Bishops Stortford • London City
Docklands • Croydon