The new dividend tax will increase the tax you pay on dividends by 7.5%, although the first £5,000 of dividends will be taxed at 0%. This change will affect different shareholders in the following ways.
As a company owner you may want to bring forward a dividend payment to before 6 April 2016 to save the additional 7.5% tax you would pay on the same income in 2016-17. However, if your total income is hovering around a tax rate threshold, the actual level of tax of tax saving will vary.
The company must also have the distributable profits available to pay the accelerated dividend. You could perhaps demonstrate that there are adequate profits to pay a dividend by drawing up management accounts for the company.
Your PAYE code for 2016-17 may include an estimated amount of tax in respect of the 7.5% dividend tax. You may want to check whether the level of estimated dividend tax is reasonable and in line with the dividends you expect to receive in 2016-17.
You can ask for the deduction for dividend tax to be taken out of your PAYE code, so that you pay any additional tax due for 2016-17 on 31 January 2018.
Basic rate taxpayers
When your income is less than £43,000 you may not be asked to complete a self assessment tax return, as you have no additional tax to pay on dividends. If you receive dividends of more than £5,000 in 2016-17 there will be tax to pay, so you may have to register for self assessment. Alternatively the extra tax due may be collected through your PAYE code, but it’s essential to check that the code is correct.
The dividend tax credit is counted as part of the tax paid in respect of donations made under Gift Aid. From 6 April 2016 that dividend tax credit is abolished. All bank interest will also be paid without deduction of tax from that date. You should check whether your total tax bill covers the tax you have declared you pay when making Gift Aid donations; we can help you with that.