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Month: March 2016

Changes with the treatment of tax on dividends post 6/4/16

In the emergency budget in June 2015, the Chancellor announced that the treatment of dividends will change after 6th April 2016.  This will affect many shareholders who have up to now enjoyed sizeable dividends without any tax implication.

From 6th April 2016 the dividend tax credit will be abolished.  In its place will be a Dividend Allowance which is £5000 of dividend income will be tax free and for dividends over £5000 will be taxed at 7.5% for the basic rate tax payers, 32.5% for the higher rate tax payers (no change) and 38.1% for the additional tax payers.

For a shareholder with a £10,000 salary, in 2015 they would have dividends of £30,000 and pay £213 in tax.  The same £30,000  dividend under the new rule will result in a tax bill of £1800, an increase of £1587.

Taking dividends is still a tax efficient way of extracting profits from the company providing there profits to take.

If you need help on the best way to extract your profits, please talk to us.

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Tax on interest income

In the budget in June 2015, the Chancellor announced  he was giving a savings allowance of £1000 in interest received for each basic rate taxpayer from 6/4/16.  This is a saving of 10% on the 2015 rates.  As interest rates are so low currently, for directors that are owed money by your company for undrawn dividends, you could charge 4% interest on the amount owed and net yourself £1000 interest free providing you are a basic rate tax payer.

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