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The effects of a coding adjustment for dividend income in 2016/2017

The effects of a coding adjustment for dividend income in 2016/2017

Currently, a dividend payment of £9,000 represents gross income of £10,000 with a 10% tax credit which covers your liability unless you are a higher rate taxpayer.

From 6 April 2016, a dividend of £9,000 will be gross income of £9,000. The first £5,000 of dividend income in a year will be taxed at 0% and additional dividends, as long as you are only liable at the basic rate of tax, will be taxed at 7.5%. It is still beneficial to take dividends rather than additional salary as the 7.5% dividend tax is less than the PAYE/NI on the additional salary.

You do not have to have the dividend tax collected through your code number. The alternative is to pay the dividend tax in January after the end of each tax year. This would be more cost effective as, with the adjustment in your code number, you are likely to have a monthly PAYE liability which would increase our costs for running your monthly payroll and result in your having to make at least quarterly PAYE/NI payments to HMRC.

Please let us know how you would like to proceed and, if appropriate, we will have your code numbers adjusted to remove the dividend entry.

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