HMRC's factsheet on new dividend treatments

HM Revenue and Customs (HMRC) has published an information fact sheet on the new dividend tax free allowance which will come into effect from April 2016.

Under proposals announced in the Summer Budget, the Dividend Tax Credit will be replaced by a new tax-free Dividend Allowance.

The Dividend Allowance means that there will be no tax to pay on the first £5,000 of dividend income, no matter what non-dividend income you have.

The headline rates of dividend tax are also changing.

Tax will be paid on any dividends over £5,000 at the following rates:

• 7.5 per cent on dividend income within the basic rate band
  
• 32.5 per cent on dividend income within the higher rate band
  
• 38.1 per cent on dividend income within the additional rate band.

Unwelcome

This change was one of four unwelcome initiatives in the Budget relating to contractors.

The others were:

• Attack on contractors' 'disguised employment' - IR35 - A review on tightening up IR35;
  
• Attack on travel and subsistence - particularly relevant to umbrella workers
  
• Attack on contractors' Employment Allowance

- which will no longer apply to sole directors.

For more information, see HMRC's Dividend Allowance Factsheet.