The way in which Dividends are taxed are changing in the next tax year which is only weeks away.
The way in which Dividends are taxed changed completely with effect from 6 April 2016 onwards.
A dividend allowance was introduced which was available to all taxpayers regardless of whether they pay tax at the basic, higher or additional rate.
Up to now that Dividend allowance has been £5000 per annum but from 6 April 2018 it is being dramatically reduced to just £2000.
For 2017/18 it is possible to enjoy dividends of £5000 tax free, once the personal allowance is used up. It is lost if not used up in the tax year.
If Dividends are available to be paid, but not done so until the next tax year (2018/19) then shareholders could be missing out.
Amounts concerned are
|Basic rate taxpayer||£275|
|Higher rate taxpayer||£975|
|Additional rate taxpayer||£1143|
Paying Dividends earlier
To take advantage of this situation it may be worthwhile advancing a planned dividend so that it is payable before 6 April 2018 rather than on or after that date.
It should be remembered that dividends are paid out of post-tax profits and that the Company can only pay a dividend if it has sufficient retained profits available to that dividend.
It is certainly worth a quick chat with your Accountant to see whether you can take advantage of these changes but do it soon so that you don’t miss out.