As the distribution of a company's profits to shareholders, dividends have historically been taxed as unearned income which meant there were no National Insurance deductions ...
Anyone who adopts a high dividend, low salary approach may need to fine-tune their remuneration package!
Although this is still the case, the Treasury has decided that the recent National Insurance increase of 1.25% will also now apply to dividends. From April 2016, the rate of Income Tax applied to dividend income was 7.5%, 32.5% and 38.1% for basic, higher and the additional rate of taxpayers. Individuals with dividend income benefit from the Dividend Allowance set at £2,000 since 2018.
"Dividends within the allowance are not charged to tax!"
Up to April 2022, the ordinary rate, upper rate and additional rate were 7.5%, 32.5% and 38.1% and these increased by 1.25% from April 2022. The dividend trust rate of Income Tax was 38.1% which also increased to remain in line with the additional rate.
Although a 1.25% dividend increase sounds pretty insignificant, basic rate taxpayers with £22,000 of dividend income would have paid £1,500 in 2021/22 and in 2022/23 it is £1,750 ... a 17% increase, even though the actual rates only increased by 1.25%.
Directors and shareholders who adopt a high dividend, low salary approach to their income will see a continued benefit from this strategy, but may need to fine-tune their remuneration package in light of these new rates.
Until next time ...
HELEN BEAUMONT
Would you like to know more?
If anything I've written in this blog post resonates with you and you'd like to discover more about dividends and national insurance, it may be a great idea to give me a call on 01908 774323 and let's see how I can help you.
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen has specialist knowledge and experience in tax planning and uses every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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