Changes In Dividends For Business Owners
New rules for business owners on the disclosure of their dividends will come into play from April 2025.
In an effort to curb tax evasion and enhance compliance, HMRC will be granted additional powers to collect information on the amount of dividend payments received by directors of owner-managed businesses.
To avoid a penalty, read on to learn what’s changing and your obligations.
WHAT’S CHANGING?
As a business owner, you’ll be required to provide a comprehensive breakdown of your dividend income via a self-assessment tax return.
This includes stating the value of the dividends, as well as distinguishing between those receive from your business and any dividends received from other sources.
HMRC will also require you to specify the percentage shareholding in your business via the SA102 form.
Failing to comply with these requirements may result in a penalty.
DIVIDENDS PAYMENTS
Establishing a policy helps to demonstrate that dividends are part of an agreed structured plan, which includes reviewing these on an ongoing basis with regards to available profits. Dividend payments can be set to a fixed schedule.
Most will receive their dividends quarterly, but it can be paid annually or semi-annually.
Once the dividend policy’s in place and dividends are declared, monies can be drawn as required.
The date of a final dividend is the date it’s declared or the fixed date of payment, if later. Posting dividends after the year end means they fall in the following year, which can mean they are taxed on the shareholder in a later tax year.
Backdating minutes is illegal and is a money laundering offence.
Why should you consider moving away from monthly payments?
Monthly dividends can be regarded as a salary, so it’s crucial to have the correct supporting documentation to provide HMRC – particularly with changes coming into play from April 2025. The supporting documentation is vital when preparing tax return disclosures, and to support with any HMRC enquiries and employer compliance reviews.
YOUR DIVIDEND ALLOWANCE
Even with the changes, taking dividends as a source of income is usually still an effective and tax-efficient way to generate regular returns from your investment in your business.
Along with your Personal Allowance, you’ll benefit from a tax-free dividend allowance. Meaning you’ll only pay tax on dividend income above the allowance.
From 6 April 2023 to 5 April 2024, the dividend tax allowance was £1,000.
However in the 2024 to 2025 tax year, the dividend tax allowance will be reduced to £500.
How much tax you pay on dividends above the dividend allowance depends on your Income Tax band.
- Basic rate taxpayer: 8.75%
- Higher rate taxpayer: 33.75%
- Additional rate taxpayer: 39.35%
But it’s worth noting dividend tax doesn’t apply to investments held in a Stocks & Shares ISA, Junior ISA, Lifetime ISA, or pension.
MANAGING YOUR DIVIDENDS
Whilst there are plenty of ‘pros’ for taking a percentage of your income in the form of dividends, it’s important to be aware of – and implement – the guidelines >
Whether you’re looking to introduce dividend payments or have been doing it for a while, regular dividend planning is key to ensure you remain compliant and continue to maximise your tax efficiency.
Planning dividends is our bread and butter, and our expert tax team are on hand to advise you on how best to control your tax planning moving forward.
For the documentation required with dividends, our Company Secretarial services can support you with preparing the dividend vouchers, the minutes from declaration and disbursement meetings, statutory registers and waiver documents.