Major changes to company dividends – will your income be affected?
April saw some substantial changes to the taxation of company dividends which could increase the tax liability of directors and shareholders of limited companies. If you pay yourself dividends from the profits of a company you own then you could be significantly affected.
The Government has removed the ten per cent dividend tax credit and replaced it with a flat £5,000 tax-free Dividend Allowance. Individuals who receive more than £5,000 from company dividends held outside tax-efficient plans such as ISAs could pay more tax.
For the 2016/2017 tax year, higher-rate taxpayers will pay 32.5 per cent tax and those who pay the additional rate will face 38.1 per cent tax – on top of the 20 per cent paid by their company.
In general terms, higher rate tax payers will now be worse off than previously if they draw more than £21,660. Additional rate tax payers will be worse off if they draw more than £25,400. Doctors exceeding the applicable figure will need to choose whether to cap their dividends or pay more tax.
Is the trading structure of your practice still tax-efficient? Are you making the most of opportunities to manage your tax liabilities together with a spouse or partner? For more information, call one of our advisers on 0207 636 7006.