Dividends – it’s been a hot topic gaining much publicity recently surrounding the new Dividend Tax Allowance, but do you know what it really means and how the changes will affect individuals and small businesses?
HMRC have tried to simplify the dividend system so that only those with significant dividend income will pay more tax.
From April of this year, the dividend tax credit will be replaced by a new tax free dividend allowance.
This means that you won’t have to pay tax on the first £5,000 of your dividend income, no matter what non-dividend income you have.
The allowance is available to anyone who has a dividend income.
Tax rates on dividends are also changing. You’ll pay tax on any dividends you receive over £5,000 at the following rates;
- 7.5% on dividend income within the basic rate band
- 32.5% on dividend income within the higher rate band
- 38.1% on dividend income within the additional rate band
Some examples of the way the allowance will work in different situations is demonstrated on the HMRC website.
Booth Ainsworth’s tax manager, Fiona Wheeler, has written a blog about the implementation of the allowance and what it really means to individuals and small businesses.