Contractors' Questions: What to do about the dividend changes?

Contractor’s Question: I’ve read about the two main ways to prepare for the planned reforms to IR35 and tax relief on travel and subsistence expenses, but what steps should I take ahead of the tax rise on dividends? This rise is going to impact me much more so I’m sure it'd be prudent to prepare now.

Expert’s Answer: The legislation to introduce changes to the taxation of dividends has not yet been formally published, but now is indeed the time to ensure you’re prepared for what’s to come.

Although your accountant will be able to provide you with a calculation to determine how the new dividend tax will affect you (and advise you on what’s best for your circumstances), here are five actions we recommend you now look into taking:

  1. Make use of the tax-free dividend allowance
  2. Make the most of each spouse’s basic rate tax allowance and tax bands
  3. Make use of ISAs
  4. Rebalance other income
  5. Consider dividends before 6 April 2016

In addition, every contractor should be looking at the structure of their limited company and whether there are any missed opportunities to have different classes of shares or additional shareholders to minimise the tax you pay.

The expert was Louisa Drewett, personal tax accountant at Intouch Accounting.

Editor's Note: Related Reading -

Contractors' Questions: Can dividends be used to reduce my tax bill?

How to avoid personally paying your Ltd's tax bill

How contractors can avoid 'doing an Adele'

Tuesday 27th Oct 2015