As you will recall HMRC radically changed the tax rates around dividend income for the 2016/17 tax year. Being six months into the new world is the perfect time for you to catch up with your accounts team to fully consider all the tax planning options available to you.
Just to recap on what the changes were, from April 2016 onwards all individuals are able to receive £5,000 of dividends tax free, any dividends above this, within the basic rate income band, is now taxed at 7.5%, dividend income in the higher rate band is taxed at 32.5% and dividend income in the additional rate band is taxed at 38.1%.
The new tax rules and rate changes mean that even more contractors will now have some personal tax to pay each year. There is no doubt that a limited company is still the most tax efficient way to operate, however these changes have placed an even greater importance on regularly reviewing your potential liability and considering your tax planning options.
As one of our limited company contractors, you can of course review your online portal which will show you your estimated tax liabilities in real time. Additionally adopting the following tax planning options may assist in minimising the tax payable:
- Defer dividends - you control the timing of any dividends and can therefore ensure you are only taking dividends when it is tax efficient to do so.
- Paying into a pension - making contributions into a pension scheme is a great way to be tax efficient and save for retirement.
Not all of the tax planning options will be appropriate for you, which is why our dedicated accounts team is on hand to provide you with advice and guidance