Dividend for 2015/16 and 2016/17

As most of you will probably know the dividend tax rates are going up from 6 April 2016.  The dividend tax credit of 10% and the dividend tax rate of 10% are being removed and a new £5,000 tax free dividend allowance introduced and a new basic rate tax on dividend of 7.5%. We go through an example of what this means below.

Example 1

You take a salary of £12,000 per annum and take dividend up to the basic rate threshold (for 2015/16 this is £27,300 in dividend). Your total tax on your salary is PAYE of £280 and NI of £472.80 and NO tax on your dividend.

In 2016/17 i.e. after 6 April 2016 if you continue to take a salary of £12,000 per annum and take dividend up to the basic rate threshold again (£31,000 for 2016/17). Your total tax on your salary would be PAYE £200 and NI of £472.80 (the Company would also pay Employers NI of £536.54) and £1,950 in tax on your dividend.

2015/16

Firstly we advise that you take out more dividend this year before 5 April 2016. You should retain enough funds in the Company bank account to pay your corporation tax (just look and see what you paid last year in corporation tax as a guide and keep this in the company bank account). There would be tax to pay on the additional dividend at 25% but this is a lower rate than 32.5% which is what the rate of tax will be from 6 April 2016.

We remind you below of the new dividend tax rates;

  2015/16                                                 2016/17

Basic                            10% + 10% tax credit                            7.5% with £5,000 tax free

Higher                                     25%                                                               32.5%

Additional                               37.5%                                                            38.1%