Although it is only five months since we had the last ever March Budget it feels like an eternity. In that time we have had an election with the resulting hung parliament, North Korea sabre rattling, President Trump tweeting, Brexit talks starting, and up here what feels like one day of summer.
So much has happened it is difficult to remember the change that was announced to the taxation of dividends in the Budget. The election threw doubt as to whether this would be implemented but even though we have a new Government in place, the Budget as announced, is to receive Royal Assent, which means ratified to you and me, once parliament returns.
In case you had forgotten, the change is that from next April anyone receiving dividends of more than £2,000 a year will be due to pay tax on these. This is a significant reduction from the current threshold of £5,000. This means that thousands more people will have to pay tax (the Government’s projection is it will raise a further £2.6bn in the next four years) even though they say they are trying to reduce the number of people that have to make a tax return.
So how will it be collected? For those that still have to complete a tax return it will be straightforward but for the rest the Revenue’s answer is to encourage us all to open a “Personal Tax Account” via the Government website. Apparently the benefit in opening a PTA is to reduce the number of people that need to complete a tax return and instead they can use this system to notify HMRC of the interest and dividends received.
Now I have not yet taken the plunge and opened one of these but according to Kathryn, our accountant, it is not the most efficient or user friendly. Quelle surprise! The majority of people who may be liable to pay this additional tax will likely be over 60 and also the least comfortable in using the internet.
HMRC state that people can still either write to their tax office or phone to confirm the dividends they receive and they will calculate the tax due but for how much longer will this be the case? Also, how many people know exactly which dividends need to be declared?
If you own shares in a VCT the dividend is usually tax free but the provider still has to send you the same dividend voucher as if it was a normal share. An accountant or adviser would know that these are not declared but would a lay person when they are completing their tax account or notifying HMRC? I suspect not.
The tax due on dividends above £2,000 is 7.5% for a basic rate payer, 32.5% for a higher rate payer and 38.1% for additional rate payers. However to complicate matters, as there is a difference between Scotland and the rest of the UK as to the threshold when higher rate tax is payable (yes our weather’s worse and we pay more tax) for dividends it will be the UK threshold that will be used.
This means that someone who pays themselves via dividends in Scotland will have a different higher rate threshold than someone with earned income. Aaaarrrgghhh! I deal with this all the time but even I think I need a lie down so heaven knows how you feel dear reader!
In March the Chancellor stated that the Government’s objective was to raise the Personal Allowance to £12,500 and the higher rate threshold to £50,000 by 2020. If this is still a priority for the new coalition it will be interesting to see what the Scottish Government will do to increase the higher rate threshold in future years.
Of course, this was the last March Budget and in future it will be in November at what used to be called the Autumn Statement. No doubt there will be more changes that we have to absorb and the attack on savers will continue. Hopefully any taxes created will be a lot easier to calculate and collect!