Most entrepreneurs do still not realise the impact that the new dividend tax will have on their tax position.
In an attempt to restrict the advantages of individuals setting up personal limited companies in order to avoid PAYE the Chancellor announced that from 6 April 2016 there will be new taxes on dividends.
The first £5,000 of dividends received will not attract any tax, but basic rate taxpayers will then pay 7.5% on any amounts received above this figure. Dividends which go into the higher rate bracket will be taxed at 32.5% and any amounts over £150,000 will attract 38.1% tax.
This represents an effective tax increase of 7.5% on an entrepreneur’s income over £5,000.
We are talking to all our clients about the effect of this on their personal circumstances.
Many people who receive much of their income through dividends will aim to reduce the short term effect of this change by bringing dividends forward into the 2015/16 tax year.