The new dividend tax could be seen as a problem to contractors, especially those who are taking dividends (paid regularly by a company out of its profits) as opposed to remuneration (wage or salary). Currently contractors can be expected to pay up to £12,000 if they earn a salary between £7,500 and £80,000. As of 6th April 2016 contractors will see an increase of how much tax they will be paying to up to £16,500.
Of course, nobody wants to pay more in tax and although the new dividend tax can’t be avoided, there are ways contractors can lessen the impact of the tax change.
General Advice
- Dividends may still be the most efficient way for contractors to extract profit their businesses
- Consider the timing of when dividends are taken in order to maximise tax benefits before new regulations come into play.
- Think about the structure of how you operate if drawing all the profits out of your business through dividends.
We would also recommend talking to a tax specialist as they can answer other questions that you may have and help you choose the best option for you.
