The new tax on share dividends was announced last year by George Osborne.
This has caused confusion for some whilst others have not yet addressed the changes. Either way, tax bills next year will be very different to the structure we have been used to in recent times.
The changes will potentially affect all shareholders in companies of whatever size, but small company shareholders are likely to be affected the most.
The new tax takes effect from April 6, 2016 and all tax payers must use self-assessment to pay any tax due from dividend income. The rates of tax are banded into 3 streams; 7.5% for basic rate tax payers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers. All 3 streams are granted the first £5,000 of dividend income tax free.
Currently basic rate taxpayers effectively pay zero tax on their dividend income, whilst higher rate taxpayers effectively pay 25% and the additional rate taxpayers effectively pay 30.56%.
Whilst everyone with dividend income above £5,000 will feel the difference, many basic rate taxpayers will notice this change most. For the first time in a long time they will have a personal tax liability on their dividend income. This will be in addition to the usual corporation tax liability on their company profits.
Good accountants will have briefed their clients on this change and indicated what the difference means to them on a tax forecast basis. They will also be in discussions where appropriate to suggest alternative accounting structures where this would be beneficial.
Here at Keen Dicey Grover we have been looking closely at the effect of this new law and will make sure all of our clients are kept abreast with how this affects them on an individual basis. We also know how important it is to provide options at the earliest stage possible so our clients can make informed decisions and continue to feel in control of their finances irrespective of the changes.
We know it’s our job to worry about the numbers, calculations and outcomes so they can continue to concentrate on growing their businesses whilst feeling confident about their financial status and forecasts.
Keen Dicey Grover
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