Don’t let HMRC kill your Christmas

Don't let HMRC kill your ChristmasThere’s no hiding from it, and it’s coming up fast. I guarantee most people won’t be ready. Don’t be one of them. Act now and you will be prepared, wait at your peril!

January 2018 is going to be a January like there has never been before – sound serious? It is. In just three-months most contractors will receive a huge tax bill and most won’t be prepared for it. You’ve never been taxed like this before and I urge you to get prepared … NOW!

What is this new tax on dividends?

The way that dividends are now taxed has completely changed from April 2016 which you probably heard about.  There’s a tax free allowance for dividends of only £5,000 and then the new tax rate of 7.5% kicks in for basic rate tax payers and 32.5% for higher rate tax payers. So, for now contractors who pay themselves in the form of dividends up to the higher rate tax threshold (as opposed to, or in addition to a salary) will be hit with a new tax bill of at least £3,037 in January which used to be zero!

Why will my bill be so high?

You will be required to pay not just your current tax-year liability, but also 50% of your tax liability for the next financial year too. £3,037.50 is the typical increase most contractors will see, but this is not a guaranteed figure. You need to get your tax return completed to know what your personal liability will be.

Get prepared

We complete every client’s personal tax return by the end of October, unless a client has failed to supply us with the essential information. The reason we have this self-imposed deadline is simple, it gives our clients time to prepare.

Christmas is just around the corner, a time when we should be free to focus on family, friends and festive cheer – but we all know it’s a time when we stretch ourselves financially. Add to this, the pressure of a five-week January and many of us find our earnings stretched to capacity. So, for the unprepared, a tax bill of over £3,000 could be a huge, unwelcome shock.

What are you (and your accountant) doing to help?

I believe it’s your accountants responsibility to keep you informed and offer you every opportunity to get on top of your tax liabilities and financial commitments. We have systems and processes in place to remind our clients of what they need to do, so they are ready.

I am shocked by the number of prospective clients I speak to, who have no idea this is coming.

You need to get organised NOW. If your accountant hasn’t asked you for your tax return information – call them today. You need to supply them with the information and they can draft your return. Crucially you must approve it once drafted – so review it carefully and iron out any errors asap. Only then, will you know how much you will need to put aside.

What happens if I don’t have £3k in January?

If you are unable to meet your tax liabilities, HMRC can and will, impose penalties and interest on late payments (they need the money). So, your £3k could quickly turn into much, much more if you don’t act quickly.

I urge you to act now.