Since April,2016 the 10% tax credit would be no more available to the shareholders, instead the amount would be treated as gross dividend income.Tax free allowance for dividend income is £5000 and one have to pay tax over and above £5000 dividend income.This will raise HMRC revenue during 2016-17 around £2.5bn.
Following are the 3 scenarios that will help to understand the tax impact on shareholders:
Scenario I: £11k Salary & £5K Dividend:
i) £11k salary covered by the personal allowance
ii) £5k of Dividend is covered by dividend allowance
iii) So 2016-17 No tax to pay( 2015-16 also Nil tax) No change
Scenario II:£11k Salary &£20k Dividend:
i)£11k salary covered by the personal allowance
ii) The first £5000 of dividend is covered by Dividend allowance &
iii) The remaining £15,000 would be taxed @7.5% basic rate i.e £1,080
iv) 2016-17 tax to pay £1,080 as compared to 2015-16 Nil tax so an increase of £1,080
Scenario III:£11k Salary & £55k Dividend:
i) £11k salary covered by personal allowance
ii) The first £5000 of dividend is covered by the dividend allowance.
iii) The next £27000 dividend is taxed at basic rate @7.5% i.e £2,025
iv) The remaining £23000 dividend would be taxed at @32.5% equal to £7,475
v) 2016-17 tax to pay ££9,500 as compare to 2015-16,£6,973, an increase of £2,527
It is good time to warn the clients early about potential rise in their tax liability in order to build up reserves to meet their tax liability for 2016-17 tax year.
If you need any help or want to discuss your Dividend income,please email or call us.We will love to help you. E: Info@pyramidpointlimited.co.uk or Call: +44(0) 7902 130 748