Dividend Tax

After being offered an early insight into the Treasury’s plans for the next tax year, many business owners are certain to have their own questions about what the proposed changes will mean for them. One area in particular that has sparked many queries is Dividend Tax, but what do you need to know about the new tax-free allowance and how can you sufficiently prepare ahead of its enforcement in April 2016?

As a leading accountant serving businesses throughout the North East, we make it our job to keep up to date with the latest legislative changes so you don’t have to. Here our qualified accountants provide a simplified view of the new Dividend Tax.

So what’s changing?

According to the early preview issued last month, from April 2016 the Dividend Tax Credit will be abolished and subsequently replaced by the Dividend Allowance.

The new tax-free allowance will be set at £5,000 for the coming tax year, and instead of reducing taxable income, the Dividend Allowance will act as a nil rate band. Any dividend income over this £5,000 threshold will be liable to tax at 7.5% in the basic rate band, 32.5% in the higher rate band and 38.1% in the additional rate band. It is important to remember that no tax will be deducted at source, therefore it is up to businesses, and their accountants, to use the self-assessment system to pay any tax that is due.

How will the new regime affect my business?

At first glance many may see the new Dividend Allowance as a scheme that aims to squeeze more money out of business owners, but despite these preconceptions, many will actually be better off under the new regime. No matter what non-dividend income you have, the allowance is available to anyone who has dividend income, and only those with a significant dividend income will pay more tax.

Investors who receive a modest income from shares will enjoy either a tax cut or be subject to no change, whilst dividends received from pension funds or Individual Savings Accounts (ISAs) will remain tax-free.

Getting further advice about the new allowance

While the new Dividend Allowance is not due to come into effect until April 2016, it is advisable that businesses throughout the North East prepare now to ensure they understand the changes, and how they apply to their company, fully. Our accounting service can advise you on the new tax and subsequently help you minimise its effects.

Get in touch today by calling 0191 251 7599 for further advice and professional support.