Contractors urged to accelerate dividend payments
In the run-up to the changes to the dividend tax payment regulations, experts are reminding contractors to check how they can maximise their income before their tax liabilities rise. The changes were announced last year and will take effect on the 6th April, meaning that any taxpayer who receives more than £5,000 in dividends will have to pay more tax than they had previously.
The rates vary, so basic rate taxpayers will pay tax at a rate of 7.5 per cent, a higher rate taxpayer will pay at the rate of 32.5 per cent and an additional rate taxpayer will be taxed at a rate of 38.1 per cent, but there are ways to maximise dividend income before the new rules kick in.
It is worth considering the impact of making any changes based on the implementing of these changes though and while experts are hoping that contractors will make the most of their allowance before it’s changed, this is only possible if they have enough money in their accounts. There is also a potential impact on child benefit for those who may find themselves paying the high-income charge as if dividends take a contractor’s annual income to more than £50,000, then this will apply, and if the total is more than £100,000 then they will lose their personal allowance altogether.
For contractors whose companies do not have distributable reserves available to make dividend payments, there are still ways to maximise your income before the changes take hold. If you have an overdrawn loan account with the company then writing this off could save money as the write-off could be treated in the same way as a dividend. However, expert advice should always be sought before committing to any course of action which could have an impact on National Insurance liability amongst other things.
Anyone who is considering working for themselves should familiarise themselves with the way contractor tax works to ensure that they are operating in the most efficient way possible. If you are a contractor who wants to make the most of their income then our take-home pay calculator could help you to ensure you are maximising your income, and our guide to contractor accountants will give you some useful information about choosing who to trust with your finances.
If you want to benefit from the expertise and experience of a team of accountants who specialise in helping contractors to work in the most efficient way then call us today on 01442 275789 or email firstname.lastname@example.org.