Dividend Tax Payments On Account

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Dividend tax payments on account


Owners of limited company’s beware, there may be an extra tax bill to plan for in 2018.


Director/shareholders of limited companies fall under self-assessment and have to submit a self-assessment tax return every year.  A common bit of tax planning is for the owner to take a salary to utilise their tax free personal allowance, and then dividends up to the top of their basic rate band.  Until recently dividends within the basic rate band created no personal tax liability for the individual, and consequently structuring remuneration in this way allowed £39,200 (2015/16 rates) of net income to be earned without the owner being liable for any personal tax.


For 2016/17 a new tax on dividends has been introduced where the first £5,000 of dividends are tax free and anything over and above this (within the basic rate band) will be taxed at 7.5%.  So for a director/shareholder that takes £11,000 salary, and dividends of £32,000 to use up their basic rate band they will pay £2,025 in personal tax.


This additional tax in itself will be unwelcome for company owners.  However what may come as a surprise are the ‘payments on account’.  Under self-assessment HMRC insist that where your personal tax bill is £1,000 or greater (unless you’ve already paid at source more than 80% of the tax due) then you pay up front half of your previous year’s tax bill by 31 January and 31 July; these are known as payments on account.  So in the example above for 2016/17 the company owner would have to make payments on account of £1,012 by both 31 January 2018 and 31 July 2018, bringing the total amount due for payment by 31 January 2018 to £3,037! 


Speak to us for further information on how the dividend tax changes will affect you.

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