Page 1

Table 1

Effective Rate of Dividend Tax 2015/16 2016/17

Dividend under Basic Rate Band 0.0% 7.5%

Dividend under Higher Rate Band 25.0% 32.5%Dividend under Additional Rate Band 30.6% 38.1%

Last but not least, it is absoultely essential to consider your IR35 status when planning for your salary. If you are caught under IR35, you will have to pay yourself similar to

that of being employed, and up to 95% of your contract income will be taxed under PAYE and NIC.

Our illustrations are for your reference only. Actual tax and NIC liabilities will be different subject to your individual circumstances. Please speak to our expert accountants

for more information and bespoke advice. With the new tax year fast approaching, please contact us by Thursday 7 April 2016 to let us know your decision on your

remuneration package.

For more information on how the budget could affect contractors

and freelancers, please click here to visit our blog.

From 6 April 2016, there will be significant changes to the way dividends are taxed (see table 1 below). Together with the restriction on Employment Allowance for

companies that only have a single director as the sole employee, it is important that contractors are aware of the effect of these changes, before making a decision on

their 2016/17 salary.

For contractors who operate as the director and sole employee of their company, please refer to our calculations on page 2. Unfortunately, Employer Allowance will no

longer be available for you so please consider the cost of employer's NIC for salaries over £8,112.

For companies that have more than one employee, Employment Allowance will continue to be available. Therefore, it is worth considering a slightly higher salary set-up to

utilise the allowance. Please see our summary on page 3.

Although we have included the 'most tax efficient' model as an example, contractors should always consider their own circumstances before making a decision. More

importantly, employers must consider the new National Living Wages if they have employees that are not directors of their company. Their remuneration should be at a

commercial rate, reflecting their contribution to the company.

Page 2

Salary / Dividend illustration for company with a single Director as the sole employee for tax year 2016/17

Illustration 1 Illustration 2 Illustration 3 Illustration 4

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Personal allowance (11,000.00) (11,000.00) (11,000.00) (11,000.00)

Taxable amount 3,040.00 @ 20% 608.00 0.00 @ 20% 0.00 0.00 @ 20% 0.00 0.00 @ 20% 0.00

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Primary threshold (8,060.00) (8,060.00) (8,060.00) (8,060.00)

Amount for Employee's NIC 5,980.00 @ 12% 717.60 2,940.00 @ 12% 352.80 52.00 @ 12% 6.24 0.00 @ 12% 0.00

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Secondary threshold (8,112.00) (8,112.00) (8,112.00) (8,112.00)

Amount for Employer's NIC 5,928.00 @ 13.8% 818.06 2,888.00 @ 13.8% 398.54 0.00 @ 13.8% 0.00 0.00 @ 13.8% 0.00

Employer allowance Not Eligible Not Eligible Not Eligible Not Eligible

PAYE and NIC Payable 2,143.66 751.34 6.24 0.00

Corporation TaxSalary 14,040.00 11,000.00 8,112.00 8,060.00

Employer's NIC 818.06 398.54 0.00 0.00

Deductible for CT 14,858.06 @ 20% 2,971.61 11,398.54 @ 20% 2,279.71 8,112.00 @ 20% 1,622.40 8,060.00 @ 20% 1,612.00

Net Tax (Saving) / Cost (827.95) (1,528.36) (1,616.16) (1,612.00)

Dividend tax illustrations under the new legislation

PSC Salary and Dividend Illustrations for Tax Year 2016/17

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Personal allowance (PA) (11,000.00) (11,000.00) (11,000.00) (11,000.00)

Salary over / (under) PA 3,040.00 0.00 (2,888.00) (2,940.00)

Basic Rate Band 32,000.00 32,000.00 32,000.00 32,000.00

Dividend under basic rate 28,960.00 32,000.00 34,888.00 34,940.00

Dividend covered by PA 0.00 0.00 (2,888.00) (2,940.00)

Dividend allowance (5,000.00) (5,000.00) (5,000.00) (5,000.00)

Dividend Tax 23,960.00 @7.5% 1,797.00 27,000.00 @7.5% 2,025.00 27,000.00 @7.5% 2,025.00 27,000.00 @7.5% 2,025.00

MostEfficient

LeastAdmin

Page 3

Salary / Dividend illustration for companies that have more than one employee for tax year 2016/17

Illustration 1 Illustration 2 Illustration 3 Illustration 4

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Personal allowance (11,000.00) (11,000.00) (11,000.00) (11,000.00)

Taxable amount 3,040.00 @ 20% 608.00 0.00 @ 20% 0.00 0.00 @ 20% 0.00 0.00 @ 20% 0.00

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Primary threshold (8,060.00) (8,060.00) (8,060.00) (8,060.00)

Amount for Employee's NIC 5,980.00 @ 12% 717.60 2,940.00 @ 12% 352.80 52.00 @ 12% 6.24 0.00 @ 12% 0.00

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Secondary threshold (8,112.00) (8,112.00) (8,112.00) (8,112.00)

Amount for Employer's NIC 5,928.00 @ 13.8% 818.06 2,888.00 @ 13.8% 398.54 0.00 @ 13.8% 0.00 0.00 @ 13.8% 0.00

Employer allowance (818.06) (398.54) 0.00 0.00

PAYE and NIC Payable 1,325.60 352.80 6.24 0.00

Corporation TaxSalary 14,040.00 11,000.00 8,112.00 8,060.00

Employer's NIC 0.00 0.00 0.00 0.00

Deductible for CT 14,040.00 @ 20% 2,808.00 11,000.00 @ 20% 2,200.00 8,112.00 @ 20% 1,622.40 8,060.00 @ 20% 1,612.00

Net Tax (Saving) / Cost (1,482.40) (1,847.20) (1,616.16) (1,612.00)

Dividend tax illustrations under the new legislation

PSC Salary and Dividend Illustrations for Tax Year 2016/17

Salary 14,040.00 11,000.00 8,112.00 8,060.00

Personal allowance (PA) (11,000.00) (11,000.00) (11,000.00) (11,000.00)

Salary over / (under) PA 3,040.00 0.00 (2,888.00) (2,940.00)

Basic Rate Band 32,000.00 32,000.00 32,000.00 32,000.00

Dividend under basic rate 28,960.00 32,000.00 34,888.00 34,940.00

Dividend covered by PA 0.00 0.00 (2,888.00) (2,940.00)

Dividend allowance (5,000.00) (5,000.00) (5,000.00) (5,000.00)

Dividend Tax 23,960.00 @7.5% 1,797.00 27,000.00 @7.5% 2,025.00 27,000.00 @7.5% 2,025.00 27,000.00 @7.5% 2,025.00

MostEfficient

LeastAdmin

PSC Salary and Dividend Illustrations for Tax Year 2016/17