The impact of new tax legislation relating to dividend income on owner managed business
Until now the most tax efficient way of extracting company profits by its director-shareholder was to draw a minimal salary and have the cashflow flexibility to draw dividends as and when required, subject to the availability of profit.
For most owner managed businesses this meant that salary was set at the level of personal allowance of £10,600 (2015/16) or up to the NI threshold of £8,059 (2015/16). Most tax conscious directors reluctant to go into the 40% tax rate typically paid themselves a dividend up to the basic rate tax rate, thus drawing total cash of £35,060 without incurring any personal tax or NIC.
From 6 April 2016 a new tax will apply to dividend income . In summary:
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