With effect from April 6th 2016, the way that dividends are taxed is changing. It is important for you to understand the impact of these changes in advance, so that you may take steps now to maximise the benefit of the slightly more favourable current rules.
While you should be aware that your dividend take-home is likely to be slightly diminished in the next and subsequent tax years, please rest assured that working through your own limited company will still be very tax-efficient and will still offer significant savings when compared to working as a PAYE employee.
From 6 April 2016 the Dividend Tax Credit will be replaced by a new Dividend Allowance in the form of a 0% tax rate on the first £5,000 of dividend income per year. UK residents will pay tax on any dividends received over the £5,000 allowance at the following rates:

  • 0% on dividends under £5,000
  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band (Over £150,000)

For most people, this will mean that they will pay more tax on dividends from 2016/17 than in previous years. Depending on your individual circumstances it may therefore be beneficial for you to pay out dividends from your company before the new tax year begins on 6thApril 2016.
Please refer to the Personal Tax Position section of the most recent email summary of your interim accounts for details of the dividends you have withdrawn to date within the current tax year and the amount of allowance remaining before hitting the next tax band.
It is essential that your company accounts are up to date to ensure that you have clarity on your tax position. Please ensure that you submit your February records for accounting ASAP following the end of the month.

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