Taxing Dividends from April 2016
31st May 2016
Bookkeeping | Business | Tax
In the Summer 2015 Budget, George Osborne announced fundamental changes to the way in which dividends are taxed and HMRC have issued a factsheet setting out examples of how the new regime will work.
An extract from the HMRC Factsheet states: “From April 2016 you have to apply the new headline rates on the amount of dividends you actually receive, where the income is over £5,000 (excluding any dividend income paid within an ISA). The Dividend Allowance will not reduce your total income for tax purposes. However, it will mean that you don't have any tax to pay on the first £5,000 of dividend income you receive.
Dividends within your allowance will still count towards your basic or higher rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.” The changes will affect dividend receipts from 6 April 2016. However, those who extract profits from their company as dividends may wish to consider whether to increase dividend payments before this date.