Currently, if you take a £1,000 dividend, your gross dividend is £1,111.11 but from 6 April 2014, the gross dividend will be £1,000, the actual amount taken. This may affect your total income for mortgage and tax credit purposes.
From 6 April 2016, the first £5,000 of dividends taken will be taxed at 0%, any further dividends that fall into the basic rate tax bracket will be taxed at 7.5% (currently 0%) and any further dividends that fall into the higher rate tax bracket will be taxed at 32.5% (currently 25%). Should you have dividends that fall into the additional rate tax bracket, they will be taxed at 38.1% (currently 37.5%).
Shareholders should therefore be aware that money should be set aside for personal tax on dividends over £5,000 and will need to be registered for self-assessment from 2016/17, if not already completing tax returns.
It is still beneficial to take dividends over salary in most cases and the company will still save employers NIC but these changes are eroding the savings.
Based on the changes, it would be beneficial to vote dividends before 5 April 2016, if the company’s reserves allow this, to ensure a shareholders basic rate tax band is fully utilised in this tax year 2015/16.
Contact us today to discuss dividends tax