Significant changes to the taxation of dividends will take effect from 6 April 2016
- 10% notional tax credit being scrapped
- Introducing a tax free Dividend Allowance of £5,000
- Then, dividends tax rates will be set at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
In short, this means that the majority of owners of small limited companies, who take a small salary and large dividend, will see a significant increase in their personal tax bill. With the exception of the first £5,000 tax free band, the tax rate on dividends, whatever your income level will increase by 7.5%.
- First £5,000 – 0%
- Balance of basic rate band– increase from 0% to 7.5%
- Higher rate – increase from 25% to 32.5%
- Additional rate – increase from 30.6% to 38.1%
There are discussions in accounting circles about the best ways to minimise the impact of this, but it’s generally accepted that anybody who currently takes a small salary and a large dividend (which takes them exactly to the threshold of the higher rates of tax) is going to see their income tax bill increase by about £1,800 per year.
Self Assessment Tax Returns for all
This will also mean that some company directors who have so far escaped having to complete a Self Assessment tax return (because there was never any personal tax to pay under the old regime) will now be required to file a personal return every year. That’s a separate service which we offer, and whilst you can do your own return if you choose, you may wish to opt for the peace of mind that comes from having it done professionally. We offer two levels of service for this, with the premium service providing you with quarterly updates, tax planning and forecasts, so that you are always forewarned about future bills.
Let us know if this is something that you’d be interested in.