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Dividend Taxation

During the Budget in November 2017, the Chancellor confirmed that the method for calculating dividend tax will change.

Call 0161 703 2549 or email info@championcontractors.co.uk

Effective from 06 April 2018, the tax free dividend threshold reduces from £5,000 to £2,000. Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate).

The change will apply to all UK company shareholders who receive dividend income.

What does it mean for contractors who provide services via their own limited companies?

A contractor who has a salary of £8,500 and dividend income of £40,000 during 2018/19 will see their £8,500 salary and first £3,350 of dividend income covered by their personal allowance.

This leaves £36,650 of dividends remaining where the following tax rates will apply:

  • £2,000 – 0%
  • £32,500 – taxed at 7.5%
  • £2,150 – taxed at 32.5%

It is more critical than ever for contractors to consider how they pay themselves.  Please use the link to our calculator to understand how much more tax you may personally be liable to pay under the new tax free threshold.

What steps can contractors take to minimise their tax liability?

Although dividend tax bills will increase from April, it does not significantly reduce the financial advantages that contractors currently enjoy.

It is however prudent for contractors to consider how they could limit any future liabilities. Options may include:

  • Retain cash within the business to fund company pension contributions
  • Retain cash within the business to fund company life cover (i.e. critical illness) premiums
  • Retain cash within the business until retirement
  • Employing staff within the business

Champion have relationships with various Independent Financial Advisors (IFA’s) who can provide bespoke guidance on pension and investment opportunities. An introductory call or face/face meeting can be organised on request.

For more general facts, figures and options, please call 0161 703 2549.

Contact Us

For more information and advice simply request a call back or contact one of our advisors on 0161 703 2549. Alternatively please email us on info@championcontractors.co.uk.