HM Revenue & Customs collects dividend tax through your monthly payroll

The dividend tax comes into operation from 6 April 2016, and applies to all dividends individuals receive in excess of £5,000 per tax year. All company owner/directors, working as an owner management businesses through a limited company who receive a modest salary within their personal allowance, and the rest of their income in the form of dividends, will pay more tax in 2016/17 than he did in 2015/16.

Under self-assessment this additional tax for 2016/17 tax year would be payable by 31 January 2018, as the balancing payment for that tax year. However, HMRC are not prepared to wait that long for the extra tax, and are applying restrictions to tax codes of many owner/directors to “code out” an estimated of 2016/17 dividends to collect the tax early.

The deduction in the PAYE code is labelled ‘dividend tax’, and is charged at 7.5% for a basic rate taxpayer, 32.5% for a higher rate taxpayer and at 38.1% for an additional rate taxpayer.

If you have received an amended notice of coding in the past couple of weeks please feel free to contact us.

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This post was written by Tim Sperrings