- The first £5,000 of dividends will be free from income tax; it should be remembered that all dividends are paid from profits after allowing for corporation tax - so profits less 20% corporation tax
- After the first £5,000 of dividends, those in receipt of dividends will be worse off by 7.5%
- The general advice of being better off as a limited company for profits over £30,000 still stands
- Higher rate tax payers operating a business as a second income will be better off under the new dividend tax rules
- The 10% notional tax credit on dividends disappears
- The dividend voucher format will change as the 10% tax credit disappears
- Dividends will no longer be grossed up
- Employing a spouse in the business, even if they have income elsewhere, may be beneficial for standard rate tax payers; check with your accountant
- Giving a spouse shares to take advantage of the £5,000 dividend allowance may be beneficial; note that gifts between spouses and civil partners are exempt from Capital Gains Tax
- We expect to see a rise in those seeking more aggressive ways to minimise their tax liability as a result of the dividend tax, e.g. renting part of the house to the business as an office at a commercial rent and paying income tax on the rental profits
The new dividend tax certainly means that those operating a limited company should be reviewing their tax affairs and discussing their personal situation with their accountant.
A "one size fits all" approach is no longer a viable option.