New dividend tax rules from April 2016

From April 6th 2016 limited company contractors will no longer receive their notional 10% tax credit on dividends. Instead they will be given a £5,000 tax free allowance on dividend income, which is in addition to the £11,000 personal allowance for the 2016/17 tax year. Any dividends that you draw out beyond this limit will be taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers, and 38.1% for additional rate taxpayers, which will need to be paid using the self-assessment system.

Therefore, the maximum you can draw out of your company before being hit by the new rules come April 2016 is £16,000. There are however a number of other options that you can choose to make use of your retained profits such as company funded pension contributions, limited company buy-to-lets and relevant life cover. To work out how these new rates will affect you in the 2016/17 tax year, you can start by looking at these dividend tax tables.

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47 thoughts on “New dividend tax rules from April 2016

  1. Common government can t impose anything on people

  2. Paying such huge taxes to government then what will left in our pocket.

  3. IR35 is only applicable to those who has their ltd co Or doing business.It is also in existence who skips their taxes.
    They are under IR35.If anybody is not paying taxes acording to his income or hiding something from HMRC.nEED to go through this storm once in anytime.

  4. IF HMRC IS THINKING TO INCREASE TAXES IN EVERY SECTION . This would going to be very hard for everyone to pay high taxes.Really scary !!

  5. BASICALLY IR35 is aimed at those who HMRC might see as ‘disguised employees’, for example if you supply your services to clients through your own limited company and the target are contractors.we got reasons to worry. :(

  6. guys in short You’ll need to pay an increased rate of tax and National Insurance, so it’s important to find out your status if you want to stay out of trouble .

  7. it will be interesting to see what would be the impact and how things change after the application of ir35.

  8. HMRC intends to use a more aggressive approach to tackle non-compliance imposing harsher penalties.every contractor should be aware of these updates.very helpful post.

    1. this blog is really helpful.it has all potential INFORMATION, its time to look for the best solution.

  9. while reading all the blogs and doing all the research i came ACROSS an info that Businesses are now entitled to claim a deduction of £2,000 from their liability to employers’ NIC. However, this does not apply to NIC on deemed earnings, that is, income derived via the intermediary that is deemed to have actually been a salary.this surely means that ir35 is going to check every aspect of a contractors income.

  10. CURRENTLY IR35 rules are very straightforward .if the individual proves that their services are being offered through a limited company, IR35 applies.

  11. this information is true because IR35 is based on the fact that sums received by the intermediary are effectively treated as employment payments by the intermediary to the worker for tax and NICs. So, you will be treated as if you were on a salary rather than the tax efficient dividends, you so carefully set up.a solution for this is really needed.

  12. though it is right and proper that self-employed people must be able to set up their own limited companies, the scheme has been abused. There are many people who use limited companies to avoid paying tax when the work they do for a client would otherwise be considered one of employment. hence undoubtedly IR35 had to come into picture .

  13. as far as i know IR35 looks at the underlying relationship between you (the worker) and the client for each contract. The facts of each contract determine whether IR35 applies, and you need to assess what your employment status would be if there were no intermediary involved.

  14. There can be significant consequences of ignoring IR35 legislation, with interest and penalties charged on any additional tax and National Insurance contributions due as a result of an INQUIRY.

  15. not all the rumors but a few of them , for instance If you are within the scope of IR35 then you have to pay higher tax than people who are outside the scope of IR35.

  16. ir35 is going to affect us all, lets just accept the fact because the information is mentioned on gov.uk.so lets help the government by being tax compliant and adapt with the change……

  17. now that everyone is aware about ir35 ,lets not screw our lives more and try to be tax complaint.

    1. its all a threat .ir35 is still in discussion. its gonna stay in news for a while and then disappear.

      1. you should research more about ir35.please visit gov.uk and check it,also a man has been jailed after being found guilty by hmrc for hiding his self employment, avoiding tax and ni.

  18. When IR35 applies, the earnings of your intermediary (your personal service company, limited company or partnership) for that engagement are deemed to be the income of the worker i.e the CONTRACTOR.also don’t forget to calculate the deemed employment payment you never know when you can be held LIABLE.

  19. There are many reasons to worry especially when HMRC concludes that IR35 does apply, the department will send the client a bill which can be truly APPALLING. If HMRC have gone back six years, it may well be three times the company’s actual turnover.

    1. i second that because If HMRC go back six years, interest can be charged on the IR35 claim at 3%. The higher rate and corporation tax counterclaims come back with interest at 0.5% but they wont allow a set off for the same untill the matter is settled COMPLETELY.

  20. You are right jessica.even i am thinking the same.

  21. the most controversial thing is, HMRC would go to the contractors’ end-clients to get information about the contracts and the way that we work. In the private sector this causes huge resentment. Being a Contractor i feel that our clients will think that we are causing trouble and wasting their time and they will want to get rid of us. HMRC compliance should not result in loss of work :(

  22. IF IT IS TRUE THEN I WOULD PREFER TO GO PERMANENT ROLE.

  23. LETS SEE WE HAVE TO WAIT TILL APRIL 16.I DO NOT HAVE SUCH NEWS TILL NOW.

  24. INDEED a helpful information .

  25. ITS TRUE.EVEN i have heard.government has already planned to increase taxes in april 16 which would be IMPLEMENTED soon.

  26. ITS ALL BECAUSE OF TAX AVOIDANCE THAT IR35 HAS COME INTO PICTURE

    1. true that.people nowadays are non complaint towards the taxation policies.

  27. THE IR35 STORY HAS BEEN GOING ON FOR A DECADE NOW SO ITS QUITE PREDICTABLE THAT HMRC WANTS TO DO SOMETHING .

  28. The impact of these measures if implemented will be catastrophic for the UK economy, and destroy the livelihoods of many legitimate small business owners.. It really worries me a lot..

  29. “Indications that the Government won’t rush through any changes to IR35, is welcome news, according to contracting specialist Nova Contracting, but contractors would be on alert for the publication of the draft Finance Bill on December 9.”

  30. Need to check if this is true, if yes then need a solution on this.

  31. New tax regime is coming in place from 6th April next year, Limited companies are in big trouble. any one has a solution apart from using umbrella companies. I am looking for a solution which is legal and safe.

  32. this chart is fake.

  33. if this is true information i will find permanent job :(

  34. From April 2016 there will be no more dividend tax credit – at least that confusion will go, but it’s not great news on the tax front…..

    Your first £5,000 of dividends will be tax free.

    1. Can you please share the link???

  35. I heard this, The gross dividend amount is then taxed at the current tax rates:

    10% (basic rate)
    32.5% (higher rate)
    37.5% (additional rate)
    its so confusing….. can anyone explain?????

    1. who told you this figure?????????????????

  36. Fake News..

  37. Yes, i heard that there is new legislation taking place from 6th of Dec, tax on dividend increasing to 32%, sad :( …..news for contractors

  38. Is this chart really valid this bill is not yet passed in Parliament i don’t think tax will increase….

  39. where did u find this chart?????

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