Dividend rates refreshed in wake of HMRC factsheet
A chartered adviser to contractors has updated its guidance on dividend taxation rates for 2016-17, to take account of the potentially band-changing factsheet from the taxman.
Moore Stephens said that, like most advisers, it took the £5,000 dividend allowance to mean that the taxable income on dividends would reduce, similar to how the personal allowance operates.
“This therefore means that, in effect, the first £5,000 of dividends have a 0% tax rate, but still form part of someone’s taxable income,” Moore Stephens clarified.
“The impact of this on a higher rate taxpayer is that the level of dividends taxed at the basic rate is reduced but it puts an extra £5k of dividends into the higher rate of tax...thus increasing their tax liability.”
Another contractor tax specialist, BKL, confirmed: “The HMRC factsheet does indeed make it clear that the £5,000 allowance does not operate in quite the way that was implied by the Budget”.
This “huge surprise” - as it has been described - is much to the disadvantage of any individual who pays the higher rate of tax, says BKL’s tax technical director David Whiscombe.
Stuart Rob, partner at accountants Baker Tily, reflected: “Dividends within your allowance will still count towards your basic/higher or additional rate bands, and may therefore affect the rate of tax that you pay on dividends you receive in excess of the £5,000 allowance.”