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Dividend rule change sparks surge in advice.

THE imminent introduction of new rules on how directors can draw an income from their businesses has led to a surge in the number of North East company owners looking for advice about how best to manage them.

Gosforth-based RMT Accountants and Business Advisors has seen growing numbers of clients and other regional businesspeople looking for its help on dealing with the rule changes on dividend payments, which come in on April 6 this year.

Dividends are drawn from a company's 'distributable reserves,' which are made up of current operating profits and other money in the bank, and are a more tax-efficient way for most company owners to draw an income from their firms than taking a simple salary, which attracts a higher rate of income tax.

But with the changes to the dividends system including the abolition of the 10% tax credit that is currently applied to the net dividend paid, these directors could be facing a substantial increase in their tax bills if they carry on as usual.

Rachel Warriner, corporate tax manager at RMT Accountants, believes many company directors will now be considering taking larger dividends than usual this year while the lower tax rate is still available.

As things stand, company shareholders who are basic rate tax payers when taking all their income into account pay no additional tax on the dividends they take. Higher rate taxpayers pay additional tax of 25% of the net dividend taken, while additional rate taxpayers pay 30.56%.

Under the new rules, which will be in place for at least the present Government's lifetime, the 10% dividend tax credit will go and rate tax payers will face a 7.5% tax rate on the dividends they take, with higher rate taxpayers paying 32.5% and additional rate taxpayers pay 38.1%. A new PS5,000 dividend allowance will also be introduced, regardless of income level. Ms Warriner said: "These changes have been in the pipeline for some months, but as is often the case, the closer that a deadline gets, the more focused the minds of people become on the potential impact on them."

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Title Annotation:Business
Publication:The Journal (Newcastle, England)
Date:Jan 20, 2016
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