Dividend Allowance Changes

April 07, 2023 by Christine Frith

It’s time to review your remuneration package

Traditionally, many directors of limited companies have taken a combination of a low salary and high dividend to extract wealth from their business. This was thanks to a combination of low corporation tax and the healthy dividend allowance. In addition, NICs (National Insurance Contributions) were not payable on dividend payments.

However, from 6th April, 2023 Corporation Tax levels are increasing, especially for those businesses with profits over £50,000. You can read about this in our blog. The dividend allowance is also reducing to £1000. It will fall again from 6th April 2024 to £500. You can read more about this change on the Government website here.

What does this mean for directors who take dividends?

You do not pay tax on any dividend income that falls within your Personal Allowance. Your allowance is the amount of income you can earn each year without paying tax. From 6th April 2023, the allowance is £1000, down from £2000. You only pay tax on any dividend income above the dividend allowance. The amount of tax you pay is based on your income tax band.

With the dividend allowance reduction, taking a low salary and high dividend may no longer be the most tax efficient way to extract profits from your business.

What should directors do?

As ever, there is not one clear answer as everyone’s personal circumstances are different. However, with these changes imminent it would be prudent to review your current remuneration. A professional accountant will look at your situation and advise your accordingly.

This may be even more pertinent if you are based in Scotland, where tax changes are different.

Whilst we are not accountants and cannot offer advice, we strongly recommend talking to your accountant sooner rather than later.

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