Dividend tax, CIS and payrolled benefits, Warning about tax avoidance schemes

The 2016/17 tax year will see the introduction of new tax on dividends, and the elimination of more paper tax return forms, this time for CIS. We have advice on how to talk to clients about both of these changes. You may also want to discuss payrolling of benefits, and the latest warnings from HMRC about tax avoidance schemes. 

This is an extract from our topical tax tips newsletter dated 11 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

Dividend tax 
We explained the mechanics of the new dividend tax in our newsletter on 20 August 2015, but that was before the draft Finance Bill was published on 9 December 2015. We now have a better idea of who will be affected, and which clients you need to talk to before 6 April 2016.

Company owners 
Shareholder/directors may want to advance a dividend payment into 2015/16 to save the additional 7.5% dividend tax that will payable on the same dividend in 2016/17. However, you need to work with each client to ensure they won't lose their personal allowances in 2015/16 (income over £100,000), or have their child benefit clawed-back (income over £50,000). 
  
The company must also have the distributable profits available to pay the accelerated dividend, so you may need to draw up management accounts to prove there are adequate profits. 
  
Some PAYE coding notices issued for 2016/17 include an estimated amount of tax in respect of the 7.5% dividend tax. It makes sense for HMRC to collect the extra tax due through PAYE rather than wait until the balancing amount of SA tax is paid on 31 January 2018. You should discuss with your client whether the level of estimated tax is reasonable and in line with the dividends they expect to receive in 2016/17. 
  
Basic rate taxpayers 
Shareholders with income within the basic rate band may not complete an SA tax return, as there currently is no additional tax to pay on their dividend income. If those shareholders receive more than £5,000 of dividends in 2016/17 there will be tax to pay, and they will have to register for self-assessment. Check the tax profile of the non-director shareholders in your family company clients, who don't currently file an SA return.     
  
Generous donors 
The dividend tax credit is counted as part of the tax paid in respect of donations made under gift aid. When the dividend tax credit disappears on 6 April 2016 taxpayers need to check that their total tax bill actually covers the tax they have declared they pay when making gift aid donations. Those same taxpayers may also receive significant amounts of interest taxed at 0% from April 2016, so their total tax bill may be close to zero.

This is an extract from our topical tax tips newsletter dated 11 February 2016 (5 days before we publish an extract on this blog). You can obtain future issues by registering here>>>

The full newsletter contained links to related source material for this story and the other two topical, timely and commercial tax tips. We've been publishing this newsletter weekly since 2007; it's clearly written and focused on precisely what accountants in general practice need to know about each week. You can obtain future issues by registering here>>>