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Heads Up: New Reporting Requirements for Dividend Data

Written by admin on . Posted in Company Director, Corporation Tax, Director Disqualification, Dividends, self-assessment. No Comments on Heads Up: New Reporting Requirements for Dividend Data

Starting with the 2025/26 tax year, directors of close companies (owner-managed companies) will need to separate the dividend income received from their companies. This change will have an impact on almost 900,000 directors.

In very broad terms, a close company is a company that is under the control of its directors or five or fewer shareholders.

At present, directors report just the total dividend income figure, which means HMRC can’t tell which dividends a director receives from their own company or from other sources. By separating out dividends, HMRC will be able to see the total remuneration package received by an owner-manager. This helps them to focus their compliance activities.

Disclosure

From 6 April 2025, directors of close companies will have to disclose:

  • name of the company and its registration number;
  • percentage shareholding in the company; and
  • amount of dividend income received from the company for the tax year.

The question on the tax return about whether an individual is a director of a close company will be changed from voluntary to mandatory.

In regard to the percentage shareholding, this will be the highest percentage held during the tax year. For some directors, providing this information will not be straightforward; for example, where a company has different classes of share.

Employee hours data

On a more positive note, the proposal that employers would have to report the actual hours worked by each employee has been shelved. The implementation date had already been put back from April 2025 to April 2026.

The Government has recognised that requesting this information as part of the real-time reporting process would have been unduly complex, costly and burdensome for businesses. The cost of the initial implementation alone was forecast to be nearly £60 million.

The starting point for determining whether a company is ‘close’ or not can be found here.

Photo by Natasha Hall on Unsplash

Dividend allowance cut doubles taxpayers

Written by admin on . Posted in benefit-in-Kind, Company Director, Dividends, self-assessment. No Comments on Dividend allowance cut doubles taxpayers

With the dividend allowance now cut to just £500, the number of taxpayers paying tax on dividend income for 2024/25 is expected to be double what it was three years ago.

Previously set at £2,000, the dividend allowance was reduced to £1,000 for 2023/24, and to £500 from 2024/25 onwards. This reduction has had the biggest impact on basic rate taxpayers. Just under 700,000 basic rate taxpayers paid tax on dividend income for 2022/23, but this number will leap to nearly 1.7 million for the current tax year.

Tax liability

A modest share portfolio of just over £10,000 yielding 5% will now use up the dividend allowance, leaving the investor with a tax liability notifiable to HMRC. Consider this:

  • Notification requires either contacting the HMRC helpline, asking HMRC to collect tax through a tax coding change (if employed), or completing a self-assessment tax return.
  • With a basic rate of 8.75% on dividend income, the amount of tax due will often be frustratingly low given the inconvenience involved.

The average amount of tax due from basic rate taxpayers is estimated to be £385 for the current tax year; down from £780 three years ago.

Even worse will be where an investor opts for script dividends. These are still taxable despite no cash being received, so tax will have to be funded from other sources.

At the same time as the dividend allowance has been cut, the level of dividend payouts by companies has generally recovered to pre-Covid levels.

Mitigation

If dividend income exceeds the £500 allowance, some mitigating steps might be possible. The obvious move is to make full use of Independent Savings Account allowances for some current, and all future, share investments. Another approach would be to invest for capital growth rather than dividend income. Making use of the dividend allowance of a spouse, partner or an adult child by spreading a share portfolio across the family is another possibility.

HMRC’s guide to tax on dividends can be found here.

Photo by Anastasiia T. on Unsplash