Dividend changes – time to get the procedure right
April 20, 2016
In the summer 2015 Budget, George Osborne announced fundamental changes to the way in which dividends are taxed. From 6 April 2016:
- The notional 10% tax credit on dividends has been abolished;
- A £5,000 tax free dividend allowance has been introduced; and
- Dividends above this level will be taxed at 7.5% (basic rate), 32.5% (higher rate), and 38.1% (additional rate)
With these new rules now in force, it is the right time to ensure that your business has the correct dividend procedure in place.
But it is just a case of making a dividend payment then posting the journal entries to show them in the correct place on the balance sheet – right?
Not quite. HMRC need evidence to demonstrate that a set process for the declaration of dividends has been followed. And with the new dividend taxation rules, this could be an area that HMRC decide to crack down on.
The points to consider upon deciding to pay a dividend to the shareholders:
Can the dividend by legally paid?
Do we have proper declaration of the dividend?
What date will the dividend be paid?
Have dividend vouchers been prepared?
Please get in touch if you would like some assistance with this as Chiks can help, from preparation of the necessary documentation to more, complex dividend planning.