Limited company directors potentially affected by the top rate of income tax are increasingly delaying making dividend declarations until the additional tax rate is cut from April 2013.
At the last Budget, the Chancellor controversially announced that the top (‘additional’) rate of income tax, which applies to incomes in excess of £150,000 per year, will be cut from 50% to 45% from April 6th 2013.
The dividend tax rate will drop from 42.5% to 37.5% from this date, and the effective tax rate (which takes into account the 10% tax credit which applies to all dividends in the UK) will be slashed fro 36.11% to 30.56%.
Top 25 accountants, Wilkins Kennedy, says that it is aware that an increasing number of owner-managed companies are putting off making significant dividend declarations in advance of the rate cut, as the potential tax savings from waiting until 2013 can be significant.
The firm said that while this delaying tactic is becoming increasingly common in owner-managed limited companies, AIM-listed firms may also follow the same tax planning strategy, if they don’t have a significant proportion of institutional investors onboard.
One of the key tax benefits of working via a limited company is that dividends are not subject to National Insurance deductions. Limited company directors can also make a variety of tax planning measures to minimise personal tax due on dividends (such as timing when dividends are taken – as this news illustrates, or gifting shares to a spouse).
You can find out more in our guide to limited company dividends.
- What tax is payable on limited company dividends?
- What are limited company dividends?
- Guide to illegal dividends, and how to avoid them
- Tax saving tips for limited company owners
- Negative headlines for limited company owners
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