Budget (10): Treasury example of 'IR591'

More details are emerging about the Budget announcement to tax dividends at 19 per cent.

Kevin Miller, UKTECH’s freelancer tax expert: “It appears from the details announced so far that the 19 per cent tax on dividends will only affect those companies whose profits for corporation tax are less than £50,000.

“There will be some interesting calculation to be done to see whether it makes sense to reduce costs, for example the salary taken by the freelancer to ensure that company profits are £50,000 or more, so that dividends taken out of those profits do not suffer any additional tax.

“We will need to get the calculators out on this.”

The Treasury has announced:

Small Business Tax Incentives

The corporation tax main rate is 30 per cent. The small companies' rate is 19 per cent for companies with taxable profits between £50,000 and £300,000, and the starting rate is zero for companies with taxable profits of £10,000 or less. Marginal relief applies to companies with profits between £10,000 and £50,000, and between £300,000 and £1,500,000.

From 1 April 2004, profits that are distributed from a company to an individual will be subject to a minimum of 19 per cent corporation tax. The lower rates above will continue to apply to profits that are reinvested in the company, or distributed to corporate entities, and companies with taxable profits subject to a rate of corporation tax of 19 per cent or higher will be unaffected.