The release of the summer budget has had a lot of implications for Limited Companies and one of the largest changes coming is to dividends.
The dividend tax credit is going to be abolished.
This is a massive change and will impact small and family run businesses hard. The end result will be that company directors who paid themselves with a mixture of dividends and a salary will have a higher tax bill.
The dividend tax credit is being replaced with a new dividend taxation structure:
Tax Free Dividends Up to £5,000
Basic Rate (7.5%) Up to £43,000
Higher Rate (32.5%) Up to £150,000
Additional Rate (38.1%) Above £150,000
This structure will mean that for the first £5,000 of dividends is tax free but take any more than this and you will have to start paying tax. The idea behind this change was to encourage investment from small shareholders. However the impact is much more significant for business owners.
At the moment we don’t know how this will interact with the personal allowance, which is set to rise to £11,000.
These changes are due to come into effect in April 2016.