From the start of the new tax year (6th April) the tax-free dividend allowance will be halved again, with millions of small business owners facing the prospect of paying more in tax, sooner, on their income.
Staggered over several years, the changes have “flown under the radar”, says one expert – but the latest cut means the tax-free dividend allowance will have been slashed by 90% since the 2017/18 tax year, from £5000:
Dividend payments are how a company distributes profits to its shareholders, meaning millions of small business owners in the UK – including freelancers and contractors – are set to be impacted.
Commenting on the cut, Seb Maley of Qdos, a tax compliance expert said, “The way these cuts have been structured means they’ve flown under the radar a little – so it’s important that people understand what impact the latest change is going to have on them.
“Ultimately, they’re allowed a maximum of £500 tax-free income from dividend payments, whether from their own limited company, or one they have an interest in. Anything over that will be subject to tax.
“It’s a double whammy. With inflation dragging people into higher tax brackets, there’s every chance they’ll end up paying even more tax on the dividends they receive.
“And that’s in addition to other tax hikes and freezes that have made it harder for the self-employed and small businesses in recent years.”
