Michael Lansdell from Lansdell & Rose Chartered Accountants talks this month about important rates and dates for 16/17.
6th April 2016 marked the start of the 16/17 tax year. As with every tax year new legislation comes into force, new tax rates are allocated and new tax planning strategies can be applied. Make sure you know the facts for this year, so you don’t miss out on valuable ways to minimise your tax bill.
The views expressed in this article are specifically those of Lansdell & Rose Accountants.
2016/2017 – tax rates and allowances
There have been one or two changes to the rates of tax this year, so it is good to familiarise yourself with the ones that apply to you. See the table below.
Per year | 15/16 | 16/17 |
---|---|---|
Personal allowance (age under 65) | £10,600 | £11,000 |
Married couple’s allowance – maximum | £220 | £220 |
Savings starting rate - Basic | £0-£5000 @10% | £0-£1000 @ 0% |
Savings starting rate - Higher | £0-£5000 @10% | £0-£500 @ 0% |
Income tax rate - Basic: 20% | £ 0 – £42,385 | £0 - £43,000 |
Income tax rate - Higher: 40% | £42,386 – £150,000 | £43,001 - £150,000 |
Income tax rate - Top: 45% | £150,000+ | £150,000+ |
Dividend tax free allowance | £0 | £5,000 |
Standard rate of CGT | 18% | 10% - 18% |
Higher rate of CGT | 28% | 20% - 28% |
Corporation Tax: £0-£300,000 | 20% | 20% |
Corporation Tax: £300,001 – £1,500,000 | 20% | 20% |
Corporation Tax: £1,500,001 or more | 20% | 20% |
ISAs: Overall limit | £15,240 | £15,240 |
Doctors and dentists – minimise your tax this year
Let’s take a closer look at each individual tax to see where doctors and dentists can save money.
Save Income tax
The personal allowance for income tax has increased marginally, along with the threshold between basic rate and higher rate tax. This means you will save a little bit regardless of any action.
As always, keeping as much of your income taxed as basic rate is the key to good tax planning. This can be done by:
- Ensuring all tax deductible expenses have been claimed for in your business accounts
- Claim work-related expenses for directors of limited companies, where costs haven’t been claimed by the company
- Pay into a private pension – as for every £ of pension contribution, your basic rate tax band is increased by £1. Maximise your contributions where possible.
- Do you qualify for the Marriage Allowance? If you are married and your spouse or civil partner don’t utilise all their personal allowance, there is an option to transfer up to £1,100 to the higher earner, which can result in up to £220 in tax savings.
Save Corporation tax
Corporation tax remains at 20% for all size companies and if you are a doctor or dentist who isn’t trading as a limited company it is worth getting a review to see if you can save tax compared to trading as self employed or a partnership. Some limited company benefits dropped off last year, however, for most healthcare professionals with self-assessment profits in the higher tax threshold, savings are likely.
Dividend tax – a new regime
It is important to note the changes to dividend tax this year. The government have introduced a £5,000 tax free amount for dividends, which will benefit those who are perhaps employed or self-employed with a small share portfolio.
However, for the average doctor or dentist trading as a limited company, there is no longer the 10% tax credit available so taking dividends this year means more tax for most. See below.
Tax band | Current dividend tax rate | Current effective dividend tax rate (with tax credit) | Dividend tax rate after April 2016 |
---|---|---|---|
Basic rate | 10% | 0% | 7.5% |
Higher rate | 32.5% | 25% | 32.5% |
Top rate | 37.5% | 30.56% | 38.6% |
It is therefore essential to be performing wider tax planning to counter the additional tax and ensure that long-term you have a plan to minimise the effects.
A Salary Sacrifice Scheme could be beneficial. Instead of a pay rise or bonus, which requires extra dividends to draw, and therefore extra tax, discuss a non-cash alternative such as additional pension contributions or childcare vouchers – this can work out tax efficient for both the company and the director.
Lansdell & Rose are specialist medical and dental accountants with a key focus on tax planning for healthcare professionals.
Contact Michael today for bespoke tax advice
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- Inheritance tax update
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