East Mids business owners to be hit by dividends shake-up, says local expert

Business owners across the East Midlands are to be hit by a change to the dividend rules announced at last month’s budget says a local taxation expert.


Simon Browning, tax partner at UHY Hacker Young in Nottingham, believes that the changes will mean higher tax bills for most business owners who extract profits by way of dividend when the new rules come into force next April. He said: “The changes to taxation of dividends is a huge shake-up which will impact all company shareholders across the East Midlands and has certainly got taxpayers and advisors reaching for their calculators to work out the most efficient dividend policy. “At the moment, basic rate taxpayers don’t pay any tax on dividends, while those paying the higher rate pay an effective rate of 25 per cent with additional rate payers paying 30.56 per cent but from April 2016, the first £5,000 of dividend income will be tax-free then basic rate taxpayers will pay 7.5 per cent, higher rate 32.5 per cent and additional rate 38.1 per cent. “What this will likely mean in most cases is an increase in taxation and higher liabilities for most business owners who extract profits in this way, so questions are being asked about what is the most effective dividend policy and we are also being asked to consider whether or not business owners should extract profits before 6th April 2016 under the existing regulations. “It’s challenging as we do not yet have the precise details of how the new rules will interact with taxpayer’s other income and cannot answer questions with certainty yet, but there is no doubt that businesses across the East Midlands will be affected by this.”