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Tax Free Dividend Allowance – To be reduced to £2,000 in April 2018

Although we had hoped that the proposed reduction of the dividend tax allowance (from £5,000 to £2,000) would not go ahead, due to it being dropped from the 2017 Finance Bill, this has now been dashed by the government re-affirming their commitment to cut the allowance.

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The £5,000 tax free dividend allowance introduced in April 2016 will now be reduced to £2,000 from 06 April 2018.

The Chancellor, Philip Hammond, has claimed that many small businesses have incorporated limited companies mainly for tax reasons and he believes there are discrepancies in the system where employees under PAYE are often taxed at much higher rates than those who operate personal service companies. Champion dispute his opinion.

Although dividend tax bills will increase from April 2018, it does not overtly reduce the financial advantages that contractors currently enjoy. Contractors should however consider accelerating any relevant dividend payments before the allowance is reduced to £2,000.

Champion will write to all of our clients after the November 2017 budget to provide a further update. We will also issue a bespoke dividend calculator so that clients can understand how the new allowance may personally affect them.

For further information and advice, please contact us or call one of our qualified advisors on 0161 703 2549.