New tax changes as to how dividends are taxed are due to take effect from 6th April 2016. The 10% notional tax credit has been abolished. In its place is a new £5000 dividend tax free allowance and any dividend income over and above the £5000 allowance will be taxed as follows-
- 7.5% for basic rate tax payers
- 32.5% for higher rate tax payers, and
- 38.1% for additional rate tax payers.
Many small business owners will end up paying more tax.
It would certainly be worth contacting your accountant to consider your tax planning and any impact of the changes. If your year end accounts don’t fall in line with the tax year it may be worth drawing up draft accounts at the end of March 16 to ensure that a maximum dividend is recorded at that date.