Dividend tax changes
Taking a combination of salary and dividends has always been the way micro business owners manage their withdrawals from their personal company; with dividend income having a more favourable tax allowance. This is set to change with the removal of the 10% tax credit on dividends. From April 2016, £5,000 will be allowable as a tax allowance with dividend above this amount payable at various rates – 7.5% for basic rate tax payers and 32.5% for higher rate tax payers. More tax planning at basic tax rate level (earnings up to £31,785 for 2015-16) will need to be done to ensure combination of personal allowance and dividend tax credit are used wisely. Contact us to discuss your dividend-salary combination for 2016-17.