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Beware dividend tax changes

Beware dividend tax changes


If you are incorporated as a limited company or incorporation is something you are considering here’s important information about dividend tax changes in April 2016. Changes also apply if you are an associate trading as a limited company.

The majority of earnings are likely to be paid out of the company via dividends. Currently, UK dividends are paid with a notional 10 per cent tax credit; as of April 2016, the dividend tax credit is being scrapped and replaced with a tax-free dividend allowance of £5,000 per year for each shareholder. Additionally, the income tax attributable to dividends is increasing by 7.5 per cent within each income tax band, including the basic rate band – which was previously tax free.

Hayley Hudson ACA, Manager for PFM Townends LLP, says: “There are a number of beneficial reasons to incorporate as part of a tax planning scheme, however, there are many factors to consider. Incorporation should be analysed on a case-by-case basis to ensure it is indeed the best course of action.

“At PFM Townends we always proactively discuss all the advantages and disadvantages with our clients.”


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