Mitchell Charlesworth warns business owners to prepare for Dividend Tax hike


Mitchell Charlesworth is urging business owners to review their remuneration policies following the planned dividend tax hike announced in the summer budget.

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Tax expert Graeme Davies from Mitchell Charlesworth said new measures brought in by the government will have tax implications for anyone who receives dividends as part of their yearly income payment.

Mr Davies said it is essential that SMEs who will be affected by the legislation change carry out a remuneration planning exercise urgently to avoid bleeding payments into the 2016/17 tax year.

In the first Tory budget for over 18 years, Chancellor George Osbourne said the government will abolish the dividend tax credit from April 6 2016 and introduce a new Dividend Tax Allowance of £5,000 a year.

The new rates of tax on dividend income above the allowance will be 7.5pc for basic rate taxpayers, 32.5pc for higher rate taxpayers and 38.1pc for additional rate taxpayers.

“These new measures essentially amount to a tax hike for most business owners,” said Mr Davies. “No matter what their precise income position is, anyone who receives a dividend as part of their income payment will be affected by the law change.

“While the new dividend tax rates remain below the main rates of income tax, those who receive significant dividend income, for example as a result of receiving dividends through a close company, will pay more.

“We are advising anyone who believes they may be affected to seek specialist support to review their tax position and put an action plan in place to amend their remuneration policy accordingly.”

Historically the tax system has encouraged entrepreneurs to take smaller salaries and larger dividends to be as tax efficient as possible

Mr Davies said the government expects these changes to reduce the incentive to incorporate and remunerate through dividends rather than through wages to reduce tax liabilities.

“The government is set to reduce corporation tax, which currently stands at 20pc,” he said. However, these stepped changes will not kick in until April 1, 2017 when it will be reduced to 19pc. It will remain at this level until on April 1, 2020 when it will be reduced again to 18pc.

“This means there will be a full financial year when the new dividend tax is active and the corporation tax relief is yet to be introduced. Business owners need to consider this extra cost”

For further details contact your local Mitchell Charlesworth contact or phone one of our offices and ask to speak to a Tax advisor.

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