Dividend Tax is changing from April 2016 so now is the time to plan if proposing additional dividends in March 2016 could save you money.

From April, dividend  tax credits will be abolished and a new taxation method brought in starting at 7.5% on all dividends over £5,000. Currently basic rate tax payers have no additional tax to pay on dividends received.

For higher rate tax payers the effective rate will rise from 25% to 32.5%. For additional rate tax payers the effective rate rises from 30.6% to 38.1%.

This means that in most cases there will be a rise in personal tax for contractors drawing dividends through a limited company and tax.

If profit is available in the company, declaring a dividend in March 2016 can mean that there will be less tax to pay in the long term than if that dividend was declared from April 2016.

At Umbrella we would be happy to discuss this with you and illustrate potential tax savings. Please call your accountant if this is something you may want to consider.

One additional point to consider is that if you vote for an additional dividend in the current tax year then any additional tax due will be payable on the 31^st January 2017 rather than 31^st January 2018 (if the dividend was voted in the next tax year). However if you are a basic rate tax payer then there may be no additional tax due.

Umbrella can be contacted on 0800 121 6513 or email: team@umbrella.co.uk