Tax on Dividends Is Changing!
How do things work now?
You can pay yourself from your limited company in two ways, via salary or dividends.
Most directors pay themselves a small salary topped up with dividends. Dividends are paid after Corporation tax has been charged, they are paid out of money that has already been taxed once.
Currently there is no personal tax to pay on dividends if you are a basic rate taxpayer
How will things work from April 2016?
When the new legislation comes in the tax situation will change.
Directors will get a £5,000 dividend allowance with a tax rate of 0%.
Any dividends taken above £5,000 will be taxed at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and 38.1% in the additional rate band.
This does not apply to dividends held within an ISA or pension.
What does this mean?
If your dividends are less than £5,000 then you will not see any change. If you are a higher or additional rate taxpayer you could save money!!
However, for many people it will mean that overall you will pay more tax to take the same amount of money out of your limited company.
Please contact us to discuss how this will affect you.