Taxation of Dividend Income

22nd February 2016

PAYE Codes: Starting to reflect new dividend tax rules.
Ahead of the start of the 2016/17 tax year, HMRC have recently begun issuing updated PAYE coding notices, which will determine how much tax is deducted at source on income paid through the PAYE system. They have provided some general guidance here :

In addition to the usual entries, some notices include an adjustment to collect the new dividend tax (see below), which takes effect from 6 April 2016. HMRC’s calculation of the PAYE adjustment is based upon the dividend amounts included on 2014/15 tax returns, and so there is a possibility that the actual dividends for 2016/17 may be significantly different to those received two years previously.  With the introduction of the new savings allowance also taking effect from 6 April 2016, we recommend that clients forward copies of any PAYE codes that they receive to us, so that we can review any adjustments, to avoid excessive under or overpayments occurring under PAYE. Unfortunately, HMRC do not routinely provide us with agent copies of PAYE codes.

Dividend Tax Changes
The dividend tax changes mentioned above can be summarised as follows:

  1. Dividends are no longer grossed-up to include the 10% tax credit, so you are taxed on the net dividend received.
  2. The first £5,000 of dividends received are tax-free
  3. Dividends falling within all income brackets now taxed at a 7.5% higher tax rate

Generally, these changes will affect both private company shareholders and taxpayers with investment portfolios, where dividend income exceeds £5,000. For the former, we recommend reviewing whether tax savings are available by accelerating dividends to the current 2015/16 tax year. For the latter, taxpayers should consider making full use their spouse’s £5,000 dividend allowance, and also making use of Stocks & Shares ISAs, to shelter income and capital gains from tax.  Please contact us if you would like us to review the impact of the dividend tax changes for you, or if you would like us to review your PAYE tax coding.

Other items in Blogs
Barbara Nicholas
25th May 2022 A Grim Reap?

We work hard to improve our lot and most of us hope that our loved ones will reap some benefit from our endeavours. But assuming that we don’t manage to spend all the fruits of our labours, the taxman is lurking. And he will take a sizeable chunk if we don’t plan sensibly.   The…

Jake Day
17th May 2022 We’re Hiring: Tax Careers at Whitings

With a vacancy now open for a Trainee Tax Technician in our Bury St Edmunds office, we’d like to give you a closer look at the highlights of choosing a career in tax – and also the highlights of choosing Whitings as your employer. Why choose tax? The common misconception with a career in tax…

Peter Brown
16th May 2022 e-Commerce: Are you finding keeping your business’s records a nightmare?

Understanding how to account for your business’s transactions with online selling platforms can be complicated. Ensuring that you are submitting the correct information to HMRC can be tricky as not all platforms have the same VAT treatment.   A2X could make your life easier by saving you time and headaches from the complex world of…

Louise Bassett
10th May 2022 Defra Announce 50% BPS advance

As farmers face being squeezed with price increases for inputs due to the situation in Ukraine and worldwide gas and energy prices, DEFRA have announced that the RPA will advance 50% of the value of BPS payments to farmers from the end of July 2022 with the balance to be paid from December as normal.…

Luke Bacon
10th May 2022 HMRC starts chasing up SEISS overpayments

HMRC has started to recover overpayments of Self-employment Income Support Scheme (SEISS) grants. From April, HMRC is writing to taxpayers whose entitlement to the fourth or the fifth SEISS grant has reduced by more than £100 to ask them to repay amounts that were overpaid. Entitlement to the fourth and fifth SEISS grants can be affected…

Charlie Whittle
5th May 2022 TRS – Information required and annual declarations

Intended as a companion to: TRS Who should register and when. The TRS will collect information about the trust and its trustees, settlors and other individuals or organisations exercising control. This will include: Name of the trust. Date the trust was created. Whether the trust is an express trust or not. Details of the trust…