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Warning - 64% Tax Rates Ahead! Gbooks Offers Accountants Free Ready Reckoner for New Dividend Tax
Gbooks, the cloud-based accountancy suite, has added a free calculator to its website to help accountants estimate the impact of the new dividend tax on their small business clients.
As from April 2016 the government is changing the way dividends received by individuals are taxed. The 10% tax credit will be abolished, and taxpayers will instead receive up to £5,000 of dividends tax free per year. Any dividends earned in excess of this amount will be taxed at 7.5%, 32.5% or 38.1% depending on whether they fall within the basic-rate, higher-rate or additional-rate tax bands.
This will lead to significant increases in income tax for owner-managed businesses, entrepreneurs and contractors working via limited companies. A director/shareholder drawing a salary of £10,000 and receiving dividends of £40,000 faces an increase of nearly £1,300 in their tax bill in 2016/17. A businessperson drawing a salary of £10,000 and dividends of £90,000 faces a tax hike of over £4,000.
The new dividend tax will also affect marginal tax rates. Basic-rate taxpayers will have marginal tax rates of up to 26%, higher-rate taxpayers of up to 46%, and additional-rate taxpayers of up to 50%. Some taxpayers will face a marginal tax rate of 64% as their Personal Allowances are scaled back as their income rises.
Clients will need to know about these tax changes well in advance so they can save more to pay their tax bills or change their behaviour to avoid the higher taxes. The Gbooks Dividend Tax Calculator allows accountants to quickly estimate how much extra tax will be due, and also explore the effect of different turnover, salary and dividend levels. The clawback of Child Benefit is also included in the calculations.
The impact of the planned future cuts in the rate of Corporation Tax is also calculated to assist with decision making and tax planning.
The Gbooks Dividend Tax Calculator is freely available at www.gbooks.co.uk/divtax.
About Gbooks
Gbooks CloudPractice Plus is a fully integrated, cloud-based compliance and practice management system. Accountants can use the system to produce final accounts for sole traders, partnerships, LLPs and Limited Companies, and file tax returns for individuals, partnerships (including LLPs) and Limited Companies.
The system also offers a company secretarial module and practice management tools including a Time and Fees function. New companies and LLPs can also be incorporated direct with Companies House using the system.
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