Dividend Tax - Frequently Asked Questions

Government legislation that will take effect from 6th April 2016, therefore affecting the 2016-17 tax year onwards.

What are the changes?

The Government is changing the tax rate on dividends which are paid.  Any dividends paid which exceed £5,000 per tax year will be subject to a new tax rate based on the recipient’s income tax band. The new tax rate starts at 7.5% for basic rate taxpayers and increases to a maximum of 38.1% for additional tax rate payers.

Who will be affected by the changes?

The new legislation will affect your own shareholders (if the client is a limited company) as it applies to all limited companies.

Limited company contractors (referred to as PSCs) will potentially incur higher tax costs depending on the amount of dividends they pay themselves.

When are the changes coming into force?

The changes will take effect from 6th April 2016, therefore affecting the 2016-17 tax year onwards.

What does this mean for us?

For PSC contractors affected by these changes, the outcome means a reduction in their take-home income.  As a result of this, some contractors may request pay rate increases to offset the increased tax burden. We would therefore encourage you to decide internally if pay rate increase requests will be considered and let us know so that we can manage expectations and deal with contractor queries on your behalf.

What do I need to do about this?

ARM will work with its contractors to help them understand the changes and we will manage their queries and expectations regarding pay rate increases as needed. You do not need to take any action.