Business owners: this new tax rise hits you first
If you run your own business, you’ve probably asked yourself this question more than once:
“Should I take most of my income as salary… or as dividends?”
For years, the answer has been easy.
Dividends have almost always been the more tax-efficient route.
But that may be about to shift.
Tucked away in last week’s Budget was a small change with big consequences for many business owners.
Rachel Reeves raised income tax by two percentage points — but only on non-earnings income.
That includes rent from properties you may own.
And, crucially, it includes the dividends you take out of your business.
The basic rate has jumped from 8.75% to 10.75%.
The higher rate from 33.75% to 35.75%.
Not huge numbers on paper… but this isn’t a one-off change. Dividend tax has been creeping up for several years, and this latest rise pushes it even further. For many business owners, the cumulative effect is now impossible to ignore.
And here’s what we’re seeing now:
For several of our clients, the difference between taking dividends and taking a salary has become surprisingly slim.
What about for you?
If dividends make up a significant part of your income, it’s worth looking at this before the new rates take effect in April.
If you’re no longer withdrawing money in the most tax-efficient way, you’ll want to map out a better approach sooner rather than later.
It’s a conversation we’ll be having with all our clients at Insight Associates…
Not because we offer personal tax advice — we are not allowed to — but because changes like this have real implications for the company itself.
And that’s something too many accountants never raise with their clients.
Does your accountant bring these issues to you proactively?
If not, it may be time to upgrade the way your finances are managed.
At Insight Associates, we work with companies turning over £1m+, providing the hands-on, world-class financial management larger businesses take for granted.
If you’d like to explore whether you’re still set up in the most efficient way, just email garry@insightassociates.co.uk or call us on 01279 647 447.
Warmly,
Garry
