The new Dividend Tax Credit rules

HMRC

 

 

From April 2016 the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance 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 dividend income.

Headline rates of dividend tax are also changing.

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Dividend tax update: New advice on nil-rate allowance

Q&Q comment:

It used to be the case that it could be tax-advantageous to incoporate your sole-person or small business. Depending on your level of profits, you could pay less tax overall by awarding yourself only a small salary, and then taking other profits out of the company by way of dividends. But the developments discussed below may well cancel out any advantages, especially for companies.with smaller profits.

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iStock/George Clerk

Since the Summer Budget, the topic dominating professional discussions on AccountingWEB and elsewhere has been the Chancellor’s proposed new tax on company dividends.

As a reminder, the Finance Bill 2016 will abolish the 10% tax credit on dividend income, which will cease to be grossed up in personal tax computations from 6 April 2016. In its place will be a £5,000 dividend tax allowance.

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