The new tax on dividend – this is what you need to know….

Author: Russell Smith
August 25, 2015

In the last budget in July 2015, George Osborne announced changes to tax on dividends.  Not all the information was revealed in July but now the government have released more details on how the tax will work.

The good news is that it is now simpler to understand.

The bad news is that it is a tax increase for all shareholders of limited companies.

Here is how it works.

At the moment, you can take out £39,206 income tax free from your limited company (this is from what is left over after your profits have been taxed at 20%).

From April 2016, if you take out £39,206 you will pay income tax of £1,770.

So it is a clear £1,770 tax increase.

Strangely, if you take out £43,000 from your limited company, you will pay £2,025 of tax compared to £948.50.  A tax increase of only £1,076.50.

So both are tax increases but the higher amount is a slightly lower tax increase.

At the moment, you wouldn’t want to take out more than £39,206 if you could help it since any more dividends would give you a tax bill of 25% (on the amount above £39,206)

From April 2016, the figure to watch out for is £43,000.  Take out more than £43,000 and you’ll get a tax bill of 32.5% (ouch!).

Here are where my numbers are coming from.  The first £5,000 dividends are tax-free.  The next £27,000 dividends are taxed at 7.5%.  The next amounts are at 32.5% (this assumes you take your salary at £11,000 (up from £10,600 this year).

These are big changes, so if you are in anyway confused feel free to email me at russell@rsaccountancy.co.uk

 

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