Changes to Dividend Tax - Budget Update

24th August 2015

Take a look at our latest Guide on Dividend Changes from 6 April 2016

HMRC confirmed how the new dividend tax for 2016/17 would operate last week when they posted a “factsheet” at;

https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

No official details on this had been published before as there was no explanation with the Budget. 

We now know that the first £5,000 of dividends received by an individual will be tax free, and that this allowance is in addition to the general personal allowance (set at £10,800 for 2016/17). For most owners of SMEs this is insufficient to offset the additional 7.5% tax which will be charged on all dividends over the £5,000 allowance, but will provide an incentive to make sure that all shareholders receive a dividend of at least £5,000 where possible. 

There is also a “sting in the tail” as the sixth example in the factsheet shows that where a shareholder receives dividends some of which are taxable at the basic rate and some at the higher rate, the £5,000 allowance is given against the basic rate (at 7.5%) instead of the higher rate (at 32.5%) – this means that the extra tax bill will be up to £1,250 pa more than we were expecting. The overall effect on individual director/shareholders will vary depending on their circumstances, and this will need to be carefully considered before next April. 

If you would like to discuss your position further, please contact us on 01273 701200 or info@plusaccounting.co.uk  

Author: Peter Hedgethorne, Director of Tax Services

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. 

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