Dividend Tax

Rumour: Avoiding Dividend Tax

Currently, there is a rumour spreading that it’s possible to backdate a dividend to avoid paying the dividend tax that applies from 6 April 2016. Unfortunately, we can confirm this is not true, a dividend simply cannot be backdated.

Under current company law the dividend proposal must be voted on by the company’s directors. The dividend can then be paid out after that approval has been issued. The dividend can be credited to the shareholders or director’s account within the company, not by reference to the date when it was declared and voted on.

If a dividend was declared and approved before 6 April 2016, and paid out after that date, it is taxed in the financial year of 2016/17 and it will be subject to the dividend tax. The only way that a cash dividend received in 2016/17 can escape the dividend tax is if it was credited to the shareholder/director’s account within the company before 6 April 2016.

The amount of dividend paid per share must be the same for all shareholders who hold the same class of shares. However, it is possible for a company to issue different classes of shares e.g. A-shares, B-shares, so it can pay a different amount of dividend to each shareholder. The company must have relevant profits available at the time the directors approve the dividend. That decision should be based on the company’s accounts.

We can help you determine the best methods of extracting income from your business, at the right time and in-line with legislation.

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