Sponsored content: New dividend tax set to take effect from April 6
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The start of the new financial year will bring a raft of changes that will prove costly for some tax payers but acting now could reduce your bill.
Keith Senior, a director at Jacobs Allen Chartered Accountants & Chartered Tax Advisors, explained that small business owners should be particularly aware of the changes.
“Essentially the Government decided to increase tax on dividends in order to prevent people with small companies managing to get money out of them in a more tax effective way.”
He explained that directors of small businesses can set their salary at a reduced level, allowing the business to make more revenue and therefore earn themselves, as the main shareholders, a higher dividend payment.
“From April 6, the Government is introducing a 7.5% tax on money extracted from companies via dividends.”
There will be a £5,000 tax-free allowance, and after that basic-rate tax payers will be charged the new levy. Anyone paying higher rate tax will have to pay 32.5%, with a 38.1% charge for those paying additional rate tax.
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Those receiving dividends will have to complete self assessment forms to establish the level of tax due.
Explaining the effect this will have, Mr Senior said: “So someone taking out say £60,000 a year could end up £2,000 or more worse off because of the additional tax.
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“That is a substantial sum of money.”
In the short term, he says you could partially negate this by taking a dividend payment before April. However, this would mean paying the due tax this year rather than postponing it to the following financial year, which could affect your cash flow.
“You will be much better off if you do this as you won’t be paying the additional tax, and you will be better off next year as you will have paid the tax ahead of time.
“You do, however, need to avoid getting into even higher rates, so a review by your accountant before then will be of benefit.”
For more advice, contact Jacobs Allen.