The HMRC have made changes to the taxation of savings and dividends included in the Draft Finance Bill for 2016, which have been criticised by the House of Lords for being overly complicated and confusing, and have been badly communicated to the public.
The Bill eliminates the withholding tax automatically being imposed by banks on interest payments at source, therefore interest from now on be paid grossly rather than the current net of a 20% basic rate tax, which will be implemented from April 6th 2016.
Another important change is that the tax-free amount is up to £1,000, which the Lords welcomed saying it was a simplification for most people, however stated that the majority of taxpayers were unaware of it.
“The HMRC’s communication approach has been somewhat inadequate and seems to rely on financial institutions informing their customers of the change, which is simply not sufficient.” remarked one Committee Chairman. The HMRC must now introduce a public awareness campaign engage those not technologically up to date, and the needs of older people who may be more likely to rely on savings.
Another change for the majority of taxpayers will be the new dividend allowance, which removes the tax charge on up to £5,000 of dividends, with higher dividend tax rates and elimination of the complicated dividend tax credit system.
The committee also criticised the HMRC’s suggestions for making electronic filing of tax forms in the more distant future. “The Government’s proposals for quarterly reporting have caused considerable disquiet in the business community. SMEs are worried that the introduction of quarterly reporting could damage the established cash flow of many small businesses.”