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An image of Rutton ViccajeeFourth in our five part series in which Rutton Viccajee guides you through the upcoming changes in the taxation of dividends

 

 Changes from 6 April 2016

 

 The change to taxation of dividends produce the following results, using the same assumptions.

 

Table 2: Tax & NIC burden self employed to limited company 2016/17

Profit Sole trader Company Tax % in co. Saving
£20,000 £2,875 £2,520 12.6% £355
£30,000 £5,775 £5,120 17.1% £655
£40,000 £8,675 £7,720 19.3% £955
£50,000 £12,485 £10,320 20.6% £2,165
£75,000 £22,985 £20,220 27.0% £2,765
£100,000 £33,485 £31,720 31.7% £1,765

Rutton’s conclusion:

  • It is still beneficial having the company (as opposed to being self-employed) but the savings are much reduced
  • But the above savings are still worst case: it is usual to retain at least some profit in the company; this always increases the tax saving;
  • Some clients are ill-advised to dis-incorporate because of other non-direct tax advantages, not least limited liability and (sometimes) VAT.