HMRC has announced dividend tax changes for business directors
HMRC has reduced the dividend allowance for company directors of businesses for the 2018/19
For 2018/19 the dividend allowance is set at £2,000 – a reduction from £5,000 for 2017/18. The reduction in the allowance will affect your profit extraction strategy if you have a personal or family company. Where the company has retained (post-tax) profits, these can be extracted in the form of dividends.
All taxpayers regardless of the rate at which they pay tax are entitled to the dividend allowance. This is beneficial in extracting profits from a family company as it provides a route for extracting dividends without triggering a further tax liability in the hands of the recipient. Dividends covered by the allowance are taxed at a zero rate.
The reduction in the dividend allowance has reduced the profits that can be extracted tax-free via this route. For example, in a family company with four shareholders, in 2017/18 it was possible to pay £20,000 out in dividends before any dividend tax was payable; for 2018/19 it is only possible to extract £8,000 tax-free in this way.
Speak to your adviser or ESB Accountancy to discuss what the reduction in the dividend allowance means for you and the impact this has on the optimal profit extraction strategy for your personal or family company.
Please talk to us at ESB Accountancy to discuss how your business can comply with the new laws – with several decades of financial experience here in Gloucestershire you can either ring us now on – email us on firstname.lastname@example.org or click the Contact Us buttonor please fill the form at the bottom of the contact us page.