You’ll already be aware that there’s a new dividend tax in town, but how much will it actually hit YOUR pocket
As a reminder, all dividends paid after 6th April 2016 are subject to the new tax charge. The rates are:
Dividend earnings up to £5,000 – Tax Free
Dividends £5,001 – £32,000 – 7.5%
Dividends £32,001 – £150,000 – 32.5%
Dividends £150,000+ – 38.1%
The first payment of the dividend tax will be made on 31st January 2018. In this post I’m going to share with you how much you’ll need to put aside for the new tax.
Throughout these calculations, we’ve assumed the following:
You’ve taken our advised salary of £8,052 per annum (£671 a month)
You have no other forms of income (rental property, pension etc)
You don’t have any other benefits, such as a company car
A quick word regarding payments on account…….
For some business owners, who have always stayed within the basic rate of tax, they will not have had a personal tax bill to pay before. They’ll also not have dealt with payments on account.
Payments on account happen when your tax bill is more than £1,000. In this scenario, HMRC ask for a payment towards the following years bill. They calculate this as half of the current years bill. A further payment of 1/2 is then due on 31st July.
These “prepayments” get knocked off the bill you’ve to pay the following January
That means that, cashflow wise, the first tax bill you get can be the worst (unless your earnings increase each year). In the calculations below, I’ve shown what your payments on account would be, both in January and July 2018.
How much is the dividend tax going to cost you?
This table shows you the dividend tax and payments on account at different levels of dividend.
Scroll down the left-hand column of the table to find your total dividends for the year (excluding salary) and then move across to see your total tax payments due in January (and July) 2018.
For example, if you have earned £30,000 in dividend (total earnings of £38,052 including salary), then your tax will be £1,654 plus a payment on account of £827. The total payable on 31st January 2018 will be £2,481
Previously, someone earning this level would have paid no tax
What steps can you take to reduce the dividend tax bill………
There are various steps available to you between now and 31st March to reduce your personal tax bill. We’ll share some of our favourites in a couple of weeks.
Alternatively, feel free to get in touch for details and prices of our bespoke tax planning service.