Dividend Tax Changes Could Impact Smaller Businesses

Posted on 7 March, 2016 by Editor in Chief

From April 2016, the Government is introducing big changes to the way dividends are taxed, which may impact smaller businesses across the UK.

Dividend Tax Changes Could Impact Smaller Businesses

At present, dividends are treated as ‘tax paid’ in the hands of shareholders. The government plans to abolish this system. As a replacement, dividend income will have a £5,000 tax-free limit, and any income in excess of this will be taxed at 7.5% for basic rate taxpayers.

The rate increases to 32.5% for higher rate taxpayers and to 38.1% for those on the highest incomes paying additional rate income tax.

These particular changes will likely have the largest impact on smaller businesses, where owners take income from their companies as a combination of salary and dividends.

For example, a sole trader with a profit of £75,000 would mean £23,130 in dividend tax under the new rule, compared to £23,290 previously. Whereas for a limited company with the same amount of profit, the tax will increase to £21,462 from £19,053.

Head of Enterprise, Clive Lewis from ICAEW, commented, “Many small companies and their owners will pay more tax and NIC (dependent on the salary and dividend amounts they decide on). Along with the National Living Wage and auto-enrolment, the changes to dividend taxation are an additional regulatory burden for SMEs.”

As a result, choosing to use a limited company can be less attractive in terms of tax efficiency, and this may encourage them to move to unincorporated business structure. However, all the potential repercussions of doing so should be taken into account if this is something you are considering.




Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.


Recent Posts

The latest property data has identified Newquay as the fastest property seller’s market in the UK

Investing in your garden can increase your property’s value

French Riviera temping high-end homebuyers

How can the ownership rights of my commercial property impact a business sale?

Should I incorporate virtual property viewings permanently?

Investment expected to increase across Asia-Pacific in 2021

UK property industry slows as the conclusion of tax break looms

BNP Paribas cautioned investors on Friday as debt-trading bonanza that increased its earnings this past year

Over 300,000 property purchases fell through in 2020 – we show the most frequent motives and the best way to get your house sale back on track

House Prices in the Capital Surpass £500,000

Optimism from the Bank of England’s chief economist

The most expensive commercial properties.

Businesses operating from shared premises will miss out on grants

BA cuts 12,000 jobs, unions hit back

Media Streaming Service See Record Subscriptions

Covid-19 Causes Millions To Claim UK Furlough Scheme