Business owners and shareholders must review their dividends, according to Salhan Accountants

dr-anjulika-175x175One of the Midlands’ leading accountancy firms, Salhan Accountants, is calling on those with shares to review their dividend income in light of recent tax changes.

On 6 April 2018, the Dividend Tax Allowance – a tax-free amount of income from dividends – was reduced from £5,000 to just £2,000.

Under the new rules, owners and investors will be able to earn up to £2,000 in dividends before they pay any tax.

Any income from dividends over this amount will be taxed at the individual’s marginal tax rate (basic rate 7.5 per cent, higher rate 32.5 per cent or additional rate 38.1 per cent).

The £3,000 reduction in the allowance means that many more investors will now be required to pay tax for the first time, while those with a higher dividend income who already pay tax will now be required to contribute more to the Revenue.

“The latest changes to tax on dividends considerably reduces the benefits of holding shares that pay out this regular income,” said Dr Anjulika Salhan, Director at Salhan Accountants.

“Were once dividends were seen as an effective way of remunerating staff members and senior executives in a tax-efficient manner, much of this benefit has been lost following these and previous changes to dividends.”

Since April 2016, if you have no other income, you could earn up to £16,000 in dividends (£5,000 dividend allowance + £11,000 personal allowance) and pay no tax.

However, under the latest changes, you will only be able to earn up to £13,500 in dividends (£2,000 dividend allowance + £11,500 personal allowance) and pay no tax.

“This means shareholders will be worse off by £225, £975 or £1,143 a year depending on whether they pay tax at the basic rate, higher rate or the additional rate,” added Anjulika.

If you are concerned about how the new rules affect your tax liabilities, please speak to Salhan Accountants today by calling 0121 455 7475 or visiting salhanaccountants.co.uk