Dividend Tax Changes – What You Need To Know

At McDade Roberts we pride ourselves in explaining corporate and individual tax requirements in an easy to digest way. Read on for the low down on dividend tax changes that could affect you from April 2022.

You may have heard about the increase in National Insurance with a 1.25% increase to pay for the increased costs of social care that will commence in April 2022. What however may not have been noticed was Dividend taxes are to increase in April 2022. This will affect small business owners who trade as a Limited company.

When Will The Dividend Tax Increase Apply?

They will apply from 6th April 2022.

How Much Are Dividend Taxes Going Up?

All dividend rates of taxes are to increase by 1.25%. This is the same amount of increase as National Insurance Contributions.

How Much Will A Basic Rate Taxpayer Pay On Dividends?

The current dividend tax rate for a basic rate taxpayer is 7.5%. As a result of the dividend tax increase, next year dividend taxes will be 8.75% for basic rate taxpayers.

A basic rate taxpayer is someone who currently earns between £12,571 and £50,270 (tax year 2021/22).

How Much Will A Higher Rate Taxpayer Pay On Dividends?

The current dividend tax rate for a higher rate taxpayer is 32.5%. As a result of the dividend tax increase, next year dividend taxes will be 33.75% for higher rate taxpayers.

A higher rate taxpayer is someone who currently earns between £50,271 and £150,000 (tax year 2021/22).

How Much Will An Additional Rate Taxpayer Pay On Dividends?

The current dividend tax rate for an additional rate taxpayer is 38.1%. As a result of the dividend tax increase, next year dividend taxes will be 39.35% for additional rate taxpayers.

An additional rate taxpayer is someone who currently ear

ns over £150,000 (tax year 2021/22).

Is The First £2,000 Of Dividends Tax Free?

Currently, regardless of total income, the first £2,000 of dividends are tax free.

As at 8th September 2021, there have been no changes announced to this tax free allowance. As a result we can only assume that the £2,000 dividend allowance will remain in 2022/23.

If you have further questions how this tax rise may affect you, give us a call. The first consultation is free so you have nothing to lose.