London, England -- (SBWIRE) -- 12/15/2015 -- On December 9, the UK government published the draft legislation on dividend allowance. This follows from summer 2015 budget reports in which the government declared that there will be a new dividend allowance of £5,000 starting from sixth April 2016. Consequently, it is expected that the rate of tax on dividend income will change. Beginning from that date, the existing dividend tax credit will be scrapped and a new dividend tax allowance of £5,000 will be introduced. As a result of these new changes, the following rules will apply to the taxation of dividend income.

From April 2016, there will be no more a 10% non-refundable dividend tax credit that is currently attached to the dividend income; it will be abolished completely. The new dividend tax allowances are expected to be effected immediately. There will be new tax rates depending on an individual's dividend allowance. The new tax rates are expected to be as follows: The rates of tax on dividend income exceeding a dividend allowance of £5,000 will be 7.5% for the basic rate tax payers, 32.5% for the higher rate tax payers and 38.1% for the additional rates tax payers. The dividend allowance will only be available to a person who has a dividend income. The new deal is structured in a way that those with smaller amounts of dividend income will pay less while those with larger amounts will have to pay more tax.

As aforementioned, the legislation states that the new rates of dividend tax will only apply to amount of dividend exceeding £5,000, which is exclusive of any dividend income that is credited to ISA or individual savings account and dividends received by pension funds. However, the dividend allowance will not in any way reduce the total income for tax purposes. An important point to note is that the dividends within the allowance will still counts towards the basic or higher tax bands. The dividend allowance is treated as zero rate of tax for the dividend amount below £5,000.

The new rules are aimed specifically at small companies who pay a small salary to the director or shareholder designed to preserve state pension entitlement followed by a large dividend designed to save national insurance. The effect is that most company directors who own their company will pay more tax than before under the proposed new changes.

Many accountants are unhappy with this new dividend allowance, calling it an unfair tax. One firm of accountants, Alexander Ene London said: "the dividend allowance system is unfair to the small business owners who already face a lot of difficulties in running a business and do not need the extra tax imposed by the new dividend allowance system."

At the present time, there are a number of petitions running against the dividend allowance. One of those petitions can be found here: https://petition.parliament.uk/petitions/106525

For more details:
Contact: Alexander Ene
Address: 336A Regents Park Road, London, N3 2LN
Telephone: 020 8343 2626
Website: http://www.alexander-ene.co.uk/