Today’s Guest Post is by Lathem Elwin of Holmes Accountancy Limited. I subscribe to the Holmes Accountancy Friday Tax Tip, and after their tip about the new dividend tax last week I asked if they’d be willing to write a guest post for me with more detail, and that is what Lathern has done.
With George Osboune’s recently announced new “dividend tax” right around the corner, we’ve already had to re-assure many of our clients that this is not the beginning of the end!
Whilst it is fair to say that the new tax laws being introduced on April 6th 2016 will have adverse effects for many businesses owners; it’s not to say that everyone loses.
Current Dividend Taxation
Under current taxation legislation, many individuals have benefited from the way that dividend income has been taxed in the UK. Currently, dividend income is taxed at source and is paid ‘net’ of tax. This means that the amount paid is actually after tax has already been deducted and normally resulted in no additional income tax being charged until the taxpayer had exceeded the basic rate threshold; into higher rate tax.
The New Dividend Tax and Allowance
However, from 6th April, the system is being changed. Individuals will be entitled to a £5,000 dividend allowance, where no income tax is payable. After this amount has been exceeded, dividends will be taxed at rates of:
- · 7.5% for basic rate taxpayers
- · 32.5% for higher rate taxpayers
- · 38.1% for additional rate taxpayers
What this could mean to you
Due to these changes, many basic rate taxpayers, whose primary income is generated via dividends, will see an increase in their income tax liability, however this amount should still be significantly lower than anyone whose primary income is generated from a PAYE salary.
Higher and additional rate taxpayers with dividend income of less than £5,000 will actually benefit from the tax changes as their dividend income will be covered by the new dividend allowance.
In summary, although the new dividend tax isn’t the greatest change to tax law released by Osbourne, it certainly isn’t the worst! Oh, and we’ve had it pretty good for a long time anyway!
If you have any queries regarding the new dividend tax, or any other accounting or taxation issues, feel free to contact us at email@example.com
Thanks you for that detailed insight Lathern, and I thoroughly recommend signing up to the weekly tax tip emails to keep up to date on payroll and accounting legislation. You can sign up for the tax tips from the Holmes Accountancy Website.