Appleleaf Accountancy
Client Portal
  • Home
  • About Us
  • Services
    • Management Accounts
    • Accounts Preparation
    • Business Start-Up Support
    • Bookkeeping Services and VAT Returns
    • Cloud-Based Software Solutions
    • Payroll, PAYE and Auto Enrolment
    • Company Secretarial
    • Company Formations
    • Personal Tax and Tax Planning
    • Contractors and IR35
  • Testimonials
  • Advisory
  • News
    • News
    • Autumn Statement 2023
    • Spring Budget Report 2023
    • Autumn Statement 2022
    • Mini Budget 2022
    • Spring Statement 2022
    • Autumn Budget 2021
  • Client Portal
  • Get in Touch
Client Portal

Slide News
Dividends

dividend complexities

creative772019-08-30T15:50:42+01:00

The dividend allowance, which was originally introduced from 6 April 2016, was cut from £5,000 a year to £2,000 from 6 April 2018. The cut is likely to have a significant impact on employees and directors of small businesses who receive both salary and dividend payments.

Many family-owned companies allocate dividends towards the end of their financial year and/or the tax year, so it was not until March/April 2019 that the impact of the reduction first started to hit home. Unfortunately, many other taxpayers may not become aware of the change until they complete their 2018/19 tax return, which in most cases, will be due for submission to HMRC by 31 January 2020.

How much tax is paid on dividend income is determined by the amount of overall income the taxpayer receives. This includes earnings, savings, dividend and non-dividend income. The dividend tax will primarily depend on which tax band the first £2,000 falls in.

The tax rates on dividend income, above the allowance, remain at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.

For a basic rate taxpayer, the reduction in the allowance means an increase in tax paid on dividends of £225. For a higher rate taxpayer, the reduction increases the annual tax bill on dividends by £975, and for additional rate taxpayers, the increase is £1,143. Note that if dividend income falls between multiple tax bands, these figures will be different.

Dividend income is taxed at the taxpayer’s highest rate. This can often work in the taxpayers favour, particularly where a mixture of salary and dividends is received. For example, if a director receives a salary of £40,000 and a dividend of £12,000, their tax liability for 2019/20 will be as follows:

Amount taxedTax due
On salary of £40,000
Personal allowance£12,500£0
Basic 20% rate£27,500£5,500
On dividend of £12,000
Dividend allowance£2,000£0
Basic rate 7.5%£8,000£600
Higher rate 32.5%£2,000£650
Total tax due for year£6,750

 

In this example, personal allowances are deducted first against the salary, leaving £27,500 of other income falling within the basic rate tax band (£37,500 for 2019/20). Dividend income falling within the basic rate band is £10,000 (£37,500 minus £27,500 used), with the remaining £2,000 falling above the basic rate limit. The dividend nil rate is allocated to the first £2,000 of dividend income, falling wholly within the basic rate band, leaving £8,000 within the basic rate band and taxable at the lower 7.5% rate. The remaining £2,000 of dividend income is taxable at the dividend upper rate of 32.5%.

Individuals who are not registered for self-assessment generally do not need to inform HMRC where they receive dividend income of up to £2,000. Those with income between £2,000 and £10,000 will need to report it to HMRC. The tax can usually be paid via a restriction to the PAYE tax code number, so that it is deducted from salary or pension. Alternatively, the taxpayer can complete a self-assessment tax return and the tax can be paid in the usual way (generally 31 January following the end of the tax year in which the income was received). Those receiving more than £10,000 in dividends will need to complete a tax return.

The allocation of various rate bands and tax rates can be complicated, even in situations where straight-forward dividend payments are made. Family business structures may be particularly vulnerable to the impact of the reduction in the dividend allowance, especially where multiple family members take dividends from the family company.

A pre-dividend review may be beneficial is such cases as illustrated above and at Appleleaf Chartered Certified Acountants we would be happy to discuss and advise you on the best structure that meets with your individual needs. If you have any questions then don’t hesitate to give us a call on and what’s even better, we would never charge for this advice, as we feel it should all be part of the service for being a client. If your accountant doesn’t offer this service or charges you this advice as an ‘extra’ then please give us a call on 01472 287387 or complete the enquiry form below. We are always happy to have an informal chat on how you too can become a client and benefit from proactive tax planning advice like our existing clients are already.

 

Share this post

Facebook Twitter LinkedIn Google + Email

Related Posts

tips for business

9 tips for running a small business in a time of high inflation

High inflation can put the squeeze on small businesses as costs rise and customers think twice before spending. You might... read more

digital tax entry

Your Helpful Guide to Double-entry Bookkeeping

HMRC are maintaining their commitment to Making Tax Digital (MTD); requiring everybody to maintain and digitally submit their accounting records.... read more

How to become your accountant’s favourite client!

We have taken this article from the FreeAgent website as it is a bit light-hearted, but also has a serious... read more

Full expensing for companies

The super-deduction, which allowed companies to claim an immediate deduction of 130% of their qualifying expenditure, came to an end... read more

Calendar

Key dates and deadlines for small businesses

Running your own small business is hard work – you will find yourself trying to develop and grow your business,... read more

Tax dividends

Taxation of dividends in 2023/24

If you have a personal or family company, taking dividends is a popular and tax-efficient way to extract profits. However, while... read more

optimising tax-free benefits in family companies

Making use of statutory exemptions for certain benefits-in-kind offers an opportunity to extract funds from a family company without triggering... read more

The 2019/20 Tax Year Is Over: Here’s What You Need to Do Now

The 2019/20 tax year has ended. That news might almost come as a surprise. I mean, amidst all the upheaval we’ve been... read more

psst…here’s how to check your accountant is doing all they can for you and your business

Whenever we take on a new client, we always look to learn as much about you and your business as... read more

using a SIPP to save for retirement

A SIPP is a self-invested personal pension which is set up by an insurance company or specialist SIPP provider. It... read more

Archives

Categories

  • Accounts
  • Brexit
  • Covid-19
  • Employee
  • Employer
  • News
  • Office News
  • Pension
  • Quick Bites
  • Scams
  • Self Employed
  • Tax Tips
  • VAT

We hate goodbyes...

Keep in touch and get the latest information

Just pop your email address in the form below to receive our newsletter and we’ll send a downloadable copy of the Making Tax Digital Fact Sheet and Action Plan direct to your inbox.

Where are we?

Appleleaf Accountancy and Tax Limited,
5 Town Hall Street, Grimsby, North East Lincolnshire, DN31 1HN

Get in touch!

01472 287387
info@appleleafaccountancy.co.uk
Facebook Twitter Linkedin
© Copyright Appleleaf | Privacy
Website by The Creative Agency
  • Main Menu
  • Top Navigation
  • Home
  • About Us
  • Services
    • Management Accounts
    • Accounts Preparation
    • Business Start-Up Support
    • Bookkeeping Services and VAT Returns
    • Cloud-Based Software Solutions
    • Payroll, PAYE and Auto Enrolment
    • Company Secretarial
    • Company Formations
    • Personal Tax and Tax Planning
    • Contractors and IR35
  • Testimonials
  • Advisory
  • News
    • News
    • Autumn Statement 2023
    • Spring Budget Report 2023
    • Autumn Statement 2022
    • Mini Budget 2022
    • Spring Statement 2022
    • Autumn Budget 2021
  • Client Portal
  • Get in Touch

Receive our newsletter to keep you up to date on the latest news, tax tips and a whole host of accountancy advice to help you and your business.

Name
johnsmith@example.com

Never see this message again.

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.OkPrivacy policy