In the 2017 Autumn Budget, the chancellor announced that the level of tax-free allowance on dividends will change. It will reduce from £5000 to £2000 per year from April 2018. This means that until April you can take dividends from your business up to £5000 without having to pay tax. However, from April 2018, a reduced £2000 limit means you’ll have to pay tax on everything over that.
There are some things you can do before the end of the tax year to minimise the effects on you.
However, this will only really be relevant to you if you meet the following criteria: –
- You are the director of a limited company.
- Your company has made a profit this year (of more than £5000).
- You have taken less than £5000 out in dividends since April 2017. (you can find this out in your accounting software)
- There is enough money in your bank account to withdraw more dividends.
If your franchise or small business is a limited company, you are entitled to take money out of your business. You can do this in several ways, but the main way is through dividends on profits you make each year.
If the dividends you’ve taken this year (since April 2017) total less than £5000, then you can still take dividends tax-free in the next few months. But this will need to be done by the end of March 2018.
However, because the limit is reducing to £2000 in April, if you want to take advantage of the £5000 limit now, you need to take out the full £5000 in dividends before the end of March.
By doing this, and taking out any dividends you can now up to the £5000 annual limit, you can maximise your income and save yourself a significant tax bill.