From April 2016, the way dividends will be taxed is changing. If you are a director-shareholder who receives some of your income from dividends, these changes will affect the amount of tax you have to pay in January 2018 and onwards.
• 7.5% on dividend income within the basic rate band (previously nil)
• 32.5% on dividend income within the higher rate band
• 38.1% on dividend income within the additional rate band
The majority of director-shareholders receive their income by way of dividends up to the basic rate level of income. As a rough guide, a shareholder with income at this level could be over £2,000 a year worse off.
The impact of the new Dividend Allowance
As the changes are now effective, we are making all affected RfM clients aware of the Dividend Allowance and that it will change how much tax they have to pay going forward. We will be calculating the precise amount of tax payable as part of preparing our clients’ tax returns in advance of January 2017. Some clients, however, have asked us do the calculation for them now so that they can plan for the impact on cashflow that will come into effect in January 2018.
If you would like us to work out exactly how much tax you will need to pay based on your individual circumstances, please contact your local RfM office or enquire online (a fee will apply).
The changes will have an impact on Self Assessment tax payments from January 2018 onwards. There are already instances of HMRC trying to collect the new tax via 2016-17 PAYE tax codes. Your RfM advisor will not receive a copy of your tax code – if you receive a copy, please send it to us. The effect of the tax payment means you will be asked for a year’s tax in January 2018 together with half again for the following year, all payable at the same time.