From 6 April 2016 HM Revenue & Custom’s new dividend tax comes into effect which will, unfortunately, result in a significant tax increase for most limited company owners.
The notional 10% tax credit on dividends will be abolished and individuals will receive a £5,000 tax-free dividend allowance. Dividend income received over the £5,000 allowance will be taxed at 7.5% if the individual is a basic rate tax payer and 32.5% if they are a higher rate tax payer rising to 38.1% if they are an additional rate tax payer. For example, if a company director and shareholder received a salary equal to their personal allowance and net dividends of £30,000.00 in the 2015/16 tax year their income tax liability would amount to approximately £348.00 however the same level of income would attract an income tax bill of £1,875.00 in the 2016/17 year.
If these changes affect you it may be worth talking to your accountant regarding any tax planning opportunities available to you.
As written for Soar Valley Life