Dividend tax information for contractors
Contractors who are likely to be affected by the changes to the dividend tax rate should consider how best to prepare for the implementation of the new regime. It is important that people are aware of when the tax will be taken by HM Revenue and Customs as the department has decided that they do not want to delay the collection of the dividend tax.
The increased rate will not be collected through the self assessment system and instead they will be including a restriction in the tax codes for 2016/17. This means that instead of waiting to see how much affected contractors will earn, and therefore owe, an estimated sum which should be roughly equal to the amount owed in dividend liabilities will be ‘coded out’.
The estimate will be based on the dividends take in 2014/15 and will also take into account salary and other income to work out how much tax is owed. For contractors who have taken advantage of the current tax rates by maximising their 2015/16 dividend payouts, the use of last year’s figures to reach an estimate should give a more realistic total.
HMRC have always been able to collect tax on alternative sources of income through tax codes, and this method of collection is usually suitable for those who have a relatively modest dividend income and are usually able to pay their tax bill without too much trouble.
However, contractors who have a low income from their salary may receive a tax bill for an unexpected sum, which could cause cash flow problems for contractors who could end up paying a higher percentage of tax than they would otherwise have been expecting.
Contractors who are arranging their dividend payments to maximise their income before the changes to the way they are taxed take effect should be aware of the potential costs involved. Those who are not sure how best to manage the changes should consider seeking expert assistance.
If you want to know how much you could expect to earn, depending on how you arrange your finances, our contractor take home pay calculator is a handy resource to help you make your decision. We also have guides to contractor tax and a number of free contractors’ guides which will help you to understand your finances more fully.
For more details on the options available to you, including advice on the best way to ensure that you are saving as much money as possible, call our friendly team today on 01442 275789 or email email@example.com.