Sutton business advisers and accountants Harmer Slater has issued a warning about new rates of tax which will come into effect soon.

As part of the Summer Budget measures, the government announced the introduction of a new dividend allowance from April 2016. The new allowance will replace the current non-refundable dividend tax credit of 10% and will mean significant changes to the way dividends are taxed. The new dividend allowance means that no tax will be due on the first £5,000 of dividend income received regardless of the amount of non-dividend income.

However, dividends in excess of the £5,000 allowance will be taxed at the following new rates based on which band of taxation the recipient’s dividend income fits within:

  • 7.5% for basic rate tax payers
  • 32.5% for higher rate tax payers, and
  • 38.1% for additional rate tax payers.

These changes leave 2015-16 as the last tax year to benefit from the current tax treatment on dividends that has been in place for many years. A standard rate taxpayer receiving a dividend in 2015-16 would not have any further tax to pay as any dividend income within the standard rate band is taxed at 10% with a corresponding 10% tax credit.

For higher rate taxpayers an additional 22.5% is due when the non-refundable 10% tax credit is taken into account and for additional rate taxpayers 27.5% is due after the tax credit.

There are a number of planning opportunities that should be considered as the current tax year draws to an end. This includes ensuring that the maximum tax efficient dividend is paid in 2015-16. This is the last opportunity for dividends to be withdrawn as part of the basic rate band with no additional Income Tax charge.

Family run companies should also look at how they are structured to ensure optimum use of the £5,000 allowance from 2016-17.
Taxes due on dividends for 2016-17 will be collected on 31 January 2018 as well as a payment on account for 2017-18.

Details

Harmer Slater are an independent firm of chartered accountants and business advisers located in Sutton, close to central London with experience in dealing with listed and unlisted businesses operating across a range of industries in the UK and overseas. For full details go to HARMER