The rules for taxing dividends changed dramatically in 2016, when the notional tax credit of 10% was removed and new rates of tax on dividends were introduced. Under the new regime, there is a dividend allowance which effectively works like a tax-free band for dividends (£2,000 from 6th April 2018, previously £5,000).
Under the old rules, dividends could be taken tax-free within the basic rate band. However, the removal of the 10% tax credit has meant that tax will now be paid on all dividends above the personal allowance and the dividend allowance.
Small business owners running limited companies tend to pay themselves a mixture of a small salary and the remainder in dividends. Many business owners will therefore be hit with tax liabilities; something they may not have experienced for some time.
Accountants can give you estimates of your tax payments; allowing you time to put some money aside each month. They’ll also make sure that the company is deducting all the expenses it is entitled to and that you are claiming all the allowances you are eligible for. If you’d like to discuss further what an accountant can do for your business or personal tax affairs, please feel free to contact your local TaxAssist Accountant.
By Jo Nockels
Disclaimer: The information provided is based on current guidance (at date of publication) from HMRC and may be subject to change. Any advice shared here is intended to inform rather than advise. Taxpayer's circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this information, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.