Tax Allowance made Elementary with Dividend Tax

May 24 19:14 2018 by Dominic Ortiz Print This Article

Looking for dividend tax allowance? So, here is the right place for the same. However, before starting let usgive you a short brief about dividend tax allowance. Starting with the obvious question; what is a dividend? No not the dividend that you’ll find in mathematics, but instead the dividend here refers to a payment to the shareholders by a corporation usually in the form of profits.

Now, coming to dividend tax allowance – this is the tax amount that the Government has applied to the corporations according to the dividend, which they pay to their investors, i.e., the profit they pay to their investors. The present scenario for the same is that currently the dividend tax is around 15% and the company needs to deposit this dividend tax within few days’ i.e.14 days after the declaration. In case the company fails to do so, they need to pay an additional interest of 1%.

This year the dividend tax allowance is in the target as in the budget the chancellor says that he believes that people regardless of their work profile, may be self-employed or shareholdersshould all pay the same amount of tax. Therefore, recently there has been a reduction in the allowance by around 60%.

Effectsof reduction in the allowance:

• Those having an income of more than that will be attracting a tax of around 7.5% for basic ones.
• For higher rate taxpayers they will draw a tax of approximately 32.5% until any further changes not only this the additional rate category taxpayer attract around 38.1%.
• Those private companies who are direct shareholders and are pay the dividends themselves are in effect by this reduction in the dividend tax allowance.
• For many companies/corporations, this reduction in dividend tax allowance has eradicated various barriers to taxation.

Options with dividends:

• The dividends are either available through cash else, and they are also available for reinvestments too to boost the growth again.
• In case of reinvestments, the dividends are without stamp duty and are ready to add to new shares i.e. are then used for purchasing new shares.

What are investors able to do now?

• Everyone wants to earn more and spend less, so everyone wants to save his money rather than spending it on giving a tremendous amount of tax. Therefore, if someone is a small business owner, he/she can check the remuneration amount he/she receives in his business to ensure tax efficient salary.
• The strategy could be checking the salary he /she earns.
• The level of dividends with him/her or the level of profit the businessperson receives from his/her business along with the constraint from the revenue and the excise department.
• Individuals ability to achieve pension for himself/herself in accordance with the reduction of the allowance
• As the circumstances vary from business to business and person to person, so it is not standard, the person or the business owner needs to manage accordingly.

Some calculations:

• If the person receives a remuneration of more than £2,000, but less than £5,000 per year in dividends they will not need topay tax on dividend income as it is within the Dividend Allowance.
• If the person receives a salary of £40,500 and the dividend is £7,000, the total revenue is £47,500, and the band becomes £43,000. So, the dividend income will be taxed at the higher rate.