April 2016 saw a significant change to the taxation of dividends which will most likely result in higher tax bills for UK taxpayers. Before April, an individual only paid tax on dividends that fell into the higher rate tax band, ie. those with a total income of over £43,000. However, the recent change saw the introduction of a basic rate tax band for dividends of 7.5%, so for every £1,000 taken there is now tax due of £75.

In fairness 7.5% doesn’t sound like that much, and compared to other tax rates it’s not exactly the highest around, but, if you’ve never paid tax on dividends before, this may be completely unexpected and there is nothing worse than an unexpected tax bill.

The one glimmer of hope is the introduction of a £5,000 Dividend Allowance for basic rate taxpayers, giving them £5,000 of dividends a year tax free. This is great for those who receive a small amount of dividends each year, but doesn’t give a great deal of relief to owner/managed companies.

This may be one of those times where most taxpayers have to just grin and bear the tax as there isn’t a great deal that can be done about it. However, it does highlight the importance of reviewing your business to make sure that you’re taking your money out in the most tax efficient way.

For further advice, please do call us on 01642 244090.