Many company owners take a small salary and variable amounts of dividends from their company each year. Previously, the dividends came with a tax credit, so there was no further tax to pay as long as total income didn’t stray into the higher tax bands.
However, since 6 April 2016 dividends over £5,000 have been subject to dividend tax at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for those in the highest tax band. If you receive more than £5,000 of dividends in the year, you will have to pay dividend tax for 2016 – 17. Some of that tax may have been collected through your PAYE code, but any balance outstanding will be payable by 31 January 2018.
We will let you know the exact amount of tax due when we complete your tax return, but you should be prepared to pay some tax in January. You can continue to pay the dividend tax through your PAYE code, but only if you have a high enough salary to support those tax deductions.
Where the tax due for 2016 – 17 is over £1,000, you will also be asked to make payments on account of the estimated tax due for 2017 – 18. That means a payment due on 31 January 2018 equivalent to half the amount paid for 2016 – 17 and another equal amount due on 31 July 2018. These on – account payments can be reduced if you expect your total income for 2017 – 18 to be less than it was in 2016 – 17.
We can help you budget for the tax due, but we need to talk through your individual circumstances.