Your final dividends should be paid prior to the 5th April 2022 or they will not be included in the current financial year’s calculations and you may lose certain allowances.
What can you take tax free and at the lower rate of tax?
It’s a good idea to think about whether you have fully maximised the amount you can withdraw from the company tax free and at the basic rate of dividend tax. Assuming your company makes sufficient profits, the total tax free amount you can withdraw, not including other sources of income and using our recommended low wage/higher dividend split, is £14,570 per financial tax year. You can take a further £35,700 of dividends at the 7.5% dividend tax rate and before the higher rate of 32.5% is charged.
This would generally breakdown as £8,832 salary for the year (£736 per month) and dividends of £41,438, incurring an estimated £2,677.50 personal tax liability due 31st January 2023, not considering the payments on account.
If you have additional income such as rental income or other employment income, this will reduce the amount of dividends you can take, before higher rate tax is charged.
When do you need to make dividend payments by?
Your final dividends MUST be paid prior to the 5th April 2022 or they will not be included in the current financial year’s calculations and you may lose certain allowances.
What should you take?
In most scenario’s it makes sense to withdraw as much money from the company at the lower tax rates, rather than let any reserves build up for a future year as your circumstances can easily change, as can the tax rates. However, there are certain things that will reduce or restrict the tax free allowance of £14,570 and the additional basic rate dividends of £35,700.
You must have sufficient reserves in the company, before making dividend payments.
Please see our detailed blog here for further information, here for the UK Dividend tax rates and thresholds for 2021/22, and here to find out what dividends are and how are they taxed or get in touch and we will advise