It has now been announced that, as of the 6th of April 2022, the tax paid on dividends will now rise for basic rate taxpayers from 7.5% to 8.75%. Those that fall under the highest rate taxpayer bracket will pay 33.75% on dividends, and additional rate taxpayers must prepare for a dividend tax rate of 39.35%.

The above rates will apply to all companies where the total dividend income exceeds the dividend allowance, which has been held at £2,000 for 2022 to 2023.

This tax increase will have a significant impact on taxpayers. For example, if a shareholder or director takes home a yearly salary of £12,570 and dividends of £37,700, their personal tax and NIC bill will increase by £442.44 from 2022 to 2023. This totals to an increase of almost 14.5%.

For those who borrow money from their company but leave the loan outstanding for more than nine months after the accounting year end, the company will have to pay a tax charge of 32.5% of the loan amount. It may be the case that the tax rate will also increase from April 2022 alongside the dividend tax rise, but this has not yet been confirmed.