Income Tax Computation

21st April 2016

2016/17 Personal Allowance: Utilise against dividend income?

The start of the 2016/17 tax year saw the introduction of the personal savings allowance, which tax exempts up to £1,000 of savings income for basic rate tax payers and £500 for higher rate taxpayers (additional rate taxpayers do not receive an allowance).  In addition, a new £5,000 zero rate dividend band was introduced, and the 10% dividend tax credit was abolished. A zero percent tax band for savings income of up to £5,000 may be available from 2015/16 onwards, but entitlement to this depends on the level of other income.

These various changes mean that in future it will be necessary to consider how the personal allowance (£11,000 for 2016/17 unless adjusted net income exceeds £100,000) is allocated. Up to now the normal approach has been to offset the personal allowance against non-savings income first, savings income next and then divided income. However the legislation (s23 and s25 of ITA 2007) states that reliefs and allowances may be deducted “in the way which will result in the greatest reduction in the taxpayer’s liability to income tax”.

The way the aforementioned rates and allowances interact may mean that it is not always beneficial to offset the personal allowance in the order ‘non-savings, savings, dividend’ as has been the case in the past.

Whether tax software (HMRC or otherwise) will be able to cope with this is an entirely different matter!



 
Other items in Blogs
 
Ian Piper
15th April 2021 2021 SME Growth: Revenge Spending?

As we pass the Covid-19’s first anniversary of its impact on our area’s economy, accounts of local SME’s are now starting to show part of the damage they have experienced through the lock-downs and associated restrictive measures. Thankfully, through Government financial help and the nimble footwork of businesses adapting to survive, the overall effect upon…

Read More »

Jaimie King
15th April 2021 Life after CBILS: The Recovery Loan Scheme

The government-backed Coronavirus Business Interruption Loan Scheme closed on 31st March to new applicants. Thankfully, the government has put in place further support for businesses, to follow this.   The Recovery Loan Scheme – Government backed loans, 3 months – up to 6 years depending on the product – Up to £10m, no cap on…

Read More »

Vanessa Pearson
26th March 2021 6 April: A Guide to Off-Payroll Working Tax Rules

The proposed new rules apply regarding who determines IR35 status for freelancers hired by medium and large companies are imminent. Our Brief Guide will help find out how this affects you and what you can do: A Brief Guide to Off-Payroll Working Blog entry by: Vanessa Pearson

Read More »

Ben Kilby
25th March 2021 I hear a rumour…

I hear a rumour that Lloyds Agricultural banking team based in Edinburgh has been disbanded and merged within other teams around the country. Although some within the new regional teams may have some knowledge of agriculture it has been suggested that customers felt that this was not important. It seems that the agricultural specialism within…

Read More »

Fiona Mann
24th March 2021 Making Tax Digital – the next steps

Our MTD Group have produced Issue 5 of their newsletter giving details of Making Tax Digital (MTD) as it continues.   So if you are unsure of what to do next, our newsletter has information and advice how to proceed.  Don’t delay however as penalties will be introduced if submission deadlines are missed.   W&P_MTD5…

Read More »

Amanda Newman
18th March 2021 Holding residential lettings in a company

There has been an ongoing debate since the government started to reduce tax relief available on mortgage interest that having property in a company could be more beneficial.   In order to transfer the property from personal ownership there could be a CGT charge depending on the difference in value from when you bought it…

Read More »