If you operate a business of any sort that accrues dividends, this is some news that you will need to take note of. From 6th April this year, the Government will change the way dividends are taxed. Currently, company dividends are treated as ‘tax paid’ in the hands of shareholders. However, from April this year the tax treatment of dividends will be altered dramatically, but will it result in company directors paying any more tax?
Currently, dividends are received with a notional tax credit – one-ninth of the dividend – and higher rate taxpayers are required to pay extra tax in addition to this. However, from April eligible individuals will be given a £5,000 tax-free allowance, but tax of varying amounts becomes payable on any dividends paid above this, depending upon personal circumstances. This will mean you must remain robust in managing your accounts and calculating these thresholds. Should you need advice or support in managing taxes, our helpful accounting team here at Newton Magnus, Accountants in Dorset, are on hand to help, just drop us a call.
This upcoming change in dividend tax is most likely to have the greatest impact on smaller businesses where owners are also the managers, who take a dividend as well as their salary. For example, a Veterinary Practice where the main partner is also the lead veterinarian. These changes will strive to reduce the gap between sole traders and limited company owners. For example, for example, for each of these currently making around £30,000 profit, they would currently see a difference in pay of around £1,600, but the gap will reduce to around £800 post-April. As profits increase so does the amount payable and dividend becomes less of an advantage.
However, some business leaders are concerned this change could be a risk to smaller companies. Clive Lewis, Head of Enterprise for the Institute of Chartered Accountants in England and Wales (ICAEW), was quoted as saying that he considered this change may actually result in many smaller businesses paying more tax and national insurance contributions, though this would depend on what mix of income and salary they choose, and the structure of their business. For these already stretched owners, this will be an additional burden on to of pension auto-enrollments and increases to the National Minimum Wage. Therefore, it is the ideal time to review your finances, taxes and forecasts with a reputable, chartered accountant who can give you no nonsense, sound advice.
Newton Magnus offer a full range of accountancy services for businesses in Bournemouth, Poole, Broadstone and the surrounding area. Visit our contact us page for more information or call us for an appointment.
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