Contractors' Questions: How do I defer the 50p tax?
Contractor's Question: When is the best time for my company to draw a dividend to avoid being hit by the incoming 50p in the £1 tax rate?
Expert's Answer : For those at the top end of the income scale, especially if they have enjoyed an unusually good year, declaring and paying a dividend before 6 April 2010 could save the extra 10 per cent income tax that is going to be applied to incomes over £150,000 as from the new tax year 2010/11. If you pay the dividend before 6 April 2010, the tax will be due a year earlier, on 31 January 2011 but at the lower rate than if the dividend was paid on or after 6 April 2010.
Despite having to pay out the tax earlier, drawing a dividend before April 6 next year is worth considering by any company owner who is potentially affected by the new top rate because of the tax saving available. In this context, it is particularly important to pay attention to the need for evidence of payment: if the company cannot prove that payment has been made on time, the dividend will not be treated as made before 6 April and risks being taxed at 50 per cent.
However, it should be noted that paying dividends without regard to the company's future needs, e.g. to meet its liabilities, including corporation tax, is a potential breach of the Companies Acts.
The expert was George Bull, partner at Baker Tilly Tax and Accounting Limited .