Dividend tax rise hits business owners
Business owners could lose thousands of pounds in income next year following changes to the way dividend payments are taxed. Business owners have typically favoured income drawn from dividends because a 10% tax credit is currently applied and they do not have to pay NICs. However, from this week the 10% tax credit will be abolished and all payments above £5,000 will be subject to a new basic rate of 7.5%, in addition to the £11,000 personal allowance. Higher rate taxpayers will pay tax of 32.5% above earnings of £31,786, compared to 25% previously. And those above the additional rate threshold of £150,000 are facing a rise from 31.6% to 38.1%. The changes mean an individual who pays themselves a basic salary of £11,000 and receives dividend payments of £100,000 will see their total tax bill rise from around £22,600 to £26,500. The Government hopes the new tax structure will reduce the incentives for tax motivated incorporations.
Source: The Daily Telegraph (04/04/2016)