This Content Was Last Updated on July 15, 2015 by Jessica Garbett
A client queried today whether the dividend tax changes from Budget 2015 mean that reversion to self employment (schedule D) is better for small company owners?
Really its too early to say – we need to see full proposals – and there is a risk of tails wagging dogs, however a quick bit of number crunching based on current understanding of proposals shows:
| Summary – one shareholder only | £ | £ | £ | £ | ||
| Profit Level | 30,000 | 70,000 | 200,000 | 250,000 | ||
| Self employed – Tax and NI | 6,083 | 23,634 | 77,604 | 100,104 | ||
| Company current | 4,536 | 17,247 | 70,165 | 92,387 | ||
| Company year 1 of dividend tax (no CT cut) | 5,325 | 19,639 | 79,439 | 104,484 | ||
| Company final version of reforms | 4,966 | 18,837 | 76,899 | 101,520 | ||
This assumes (a) one shareholder (b) salary at PA level (c) what we know so far
At lower profit levels a company still wins. As profit rises in the short term self employment is marginally cheaper, but the advantage neutralises or favours a company – and, of course, at those profit levels the more sophisticated planning and protection regime of a company is preferred.