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Tax savings by trading through a limited company

Impact of the new income tax on dividends

From 6 April 2016 dividends will be subject to income tax at the rate of 7.5% for basic rate taxpayers and 32.5% for higher rate taxpayers. The government have introduced the tax in order to discourage the self employed from setting up limited companies purely for tax saving reasons.

Following the introduction of the tax, an individual making annual profits of £30,000 will be around £700 better off trading via a limited company than being self employed. This compares to tax savings of approximately £1,500 before the new tax was introduced. At a profit level of £60,000, the tax savings are approximately £3,300.

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