The Self-Assessment return for 2016/17 will be the very first return with Dividend Tax. Dividend tax was introduced by former Chancellor to Exchequer George Osborne in Budget 2016. Key changes from 6th April 2016 are,
- The Dividend Tax (10%) Credit will be abolished
- Dividend Tax Allowance of £5,000
- The new rates of tax on dividend income above the allowance will be 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers.
This does mean it’s inevitable that you will have “Dividend Tax” and “Payment on Account” on your 2016/17 Self – Assessment return.Payment on account is an “Advance payment” of Tax for the following year. HMRC assumes your income will be same in 2017/18 as it was in 2016/17 and so they request you to pay in advance. Payment on account needs to be paid in 2 instalments. First instalment is due by 31st Jan each year and second instalment is due by 30th July each year.
The difference between Payment on account (or advance payment) and actual Tax amount need to b settled to HMRC by 31st January each year. HMRC will refund if it’s an overpayment.
Before you get surprised with your tax bill in January 2018 we would like to highlight the numbers compared to 2015/16 return with two examples. These examples are specific to Contractors and Freelancers so additional income such as bank interest, rental income are not considered.
Example 1: Mr X is the only Director and Shareholder of the company. Below are his tax workings for both years and his Payment on Account (or advance payment) numbers.
Mr X needs to pay HMRC,
- Before 31st January 2018 £2,025+£1,013 = £3,038
- Before 30th July 2018 1,012
£2,025 will remain as credit on HMRC account and will be offset against 2017/18 Tax.
Example 2: Mr X and Mrs Y are the Directors and Shareholders of the company. They Draw Equal Dividends and Salary. Below are his tax workings for both years and Payment on Account (or advance payment) numbers for both.
Mr X and Mrs Y needs to pay HMRC,
- Before 31st January 2018 £4,050 + £2,025 = £6,075
- Before 30th July 2018 £2,025
£4,050 will remain as credit on HMRC accounts and will be offset against 2017/18 Tax.
You can see Dividend tax specific to you on our Online Portal
We kindly urge you to action below steps for us to file the SA return.
- Log in to our online portal
- On “Bank Statements” Tab Check your bank statements are updated until 05/04/2017
- If not updated please send us the latest bank statements in CSV format and we will update this for you
- If updated please go to “Self-Assessments” tab
- Shareholder name – pls choose the name and Year pls choose “April 2017”
- Answer the questionnaire and confirm the answers
- Please click “Create and Finish”
- We will take care of the submission
- Please ensure you make the payment by 31st January 2018 quoting your personal UTR (Unique Tax Reference) number
If you have any questions, please do not hesitate to contact us.