Dividends or Salary?

dreamstimemedium_40802349The budget has made significant changes to the way dividends will be taxed from 2016.

This will undoubtedly have an effect on the tax planning arrangements of small owner managed businesses and contractors that trade through Limited Companies.

These changes will come into effect from April 2016.

Currently just so long as the amount of gross dividend paid to you is below your basic rate personal income tax threshold, then there was NO TAX to pay on the dividend

Going forward from April 2016

The proposal is that:
 there will be a new annual dividend allowance of £5,000;
 the 1/9 tax credit will disappear;
 the new tax rates on dividend income will be 7.5%, 32.5% and 38.1% for basic, higher and additional rate taxpayers respectively.

These new rates will replace the 0%, 25% and 30.56% for basic, higher and additional rate taxpayers.

The reform is designed to reduce what the government perceives to be strong incentives to incorporate businesses and extract profits by way of dividend with a lower rate of overall tax.

Should you wish to discuss how these changes will effect you or discuss any other tax matter then please contact us on 0800 689 3084 alternatively email [email protected]


Paul Stankiewicz is the owner and principal at Paul Marks & Co Chartered Accountants which is the trading name of Paul Marks Ltd a Limited Company registered in England and Wales (registered number 4487645). This article is designed for the information of readers only and readers should not act on any of the information contained in this article without seeking professional advice. Nothing in this article constitutes advice, nor does the transmission, downloading or sending of any information or the Material create any contractual relationship. Links to third party websites are provided as a convenience to the reader, Paul Marks Ltd does not control and is not responsible for any of those websites or their content.Paul Stankiewicz and Paul Marks Ltd accepts no liability or responsibility whatsoever for any loss or damage suffered by any user of the information contained on or accessed through this article or the Material downloaded.