Many company Directors take
dividends from their companies as this is a tax efficient way of remunerating
yourself alongside a salary.
Up until 5 April this year,
if you pay only basic rate tax, there is no additional tax to pay on dividends
falling within this range (commonly known as the 10% credit or relief) as the
tax is considered to be deducted at source thus you receive the dividend net.
However, from 6 April 2016
the rules are changing. Every individual
is entitled to £5,000 of dividends tax free and from £5,001 to the higher rate
tax threshold will be taxed at 7.5%.
Note that this means you now receive the dividend gross.
Example (for a basic rate tax payer)
To 5 April 2016 You received a dividend of
£13,500
This dividend is received net
with the 10% tax already deducted. The actual dividend is £15,000 which is
entered onto the tax return. The tax
deducted of £1,500 is treated as tax already paid so there is no additional tax
to pay.
From 6 April 2016 You receive the same dividend of
£13,500
This dividend is received
gross. Assuming there are no other
dividend income, the first £5,000 is exempt from taxation meaning £8,500 is
liable at 7.5% giving a self assessment tax bill of £637.50.
Remember!!
- If your dividend income is over the £5,000
exemption, you will have a tax bill so keep money aside to pay HMRC.
- If you don't already, you will need complete a self assessment tax return in order to pay the tax to HMRC
