Next year, tax on dividends goes up significantly for most people who trade via a limited company. That means that many people in that situation will be looking at increasing their dividends in the current year, bringing some forward to take advantage of this year's tax rates, rather than next year's.
It's the Chancellor's Pre-Budget Report in a couple of weeks, and there have been some suggestions that he could implement some rules somehow discouraging bringing dividends forward into the current tax year, or making it pointless. Fairly often such "anti-forestalling" rules are brought in when big changes are made to the rules, making some sort of tax planning or dodge redundant with immediate effect. So, should you make the decision to bring forward dividends now, rather than waiting until later in the tax year, in case that happens?
We think it's actually really, really unlikely such rules will be brought in. The government will actually be delighted for people to bring dividends forward and pay tax early - it's great for cashflow. When the top rate of tax was increased from 40% to 50%, it resulted in a spike of income tax receipts as people were paid early, so as to take advantage of a tax rate that had looked harsh but suddenly looked generous. There was no anti-forestalling, because the goverment were keen for people to get money out of their businesses and pay 40%, rather than leaving money in their businesses and sit it out. That's going to be the case here, and higher dividends being paid and taxed in 2015-16 will be something the government is keen on.
By all means, if you know you're going to want to up your dividends this year, and your company has the reserves to do so, go ahead and declare the dividend - it can't do any harm. But we don't really think there's such a risk that the Chancellor will try to deter dividends fom being declared and tax paid on them for the remainder of this tax year.
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