For a while, company directors have been able to make a tax-efficient living by taking a combination of salary and dividends due to the generous Dividend Allowance.
However, changes which took effect from 6 April 2018 have cut the allowance from £5,000 to just £2,000.
The changes are meant to level the playing field between the self-employed, directors, shareholders and employees, but if you’re not careful, you could get left behind.
In real terms, the cut will cost directors anywhere from £225 to £1,143 a year, depending on which tax bracket they fall into. It is therefore recommended that you review how you drawdown income from your company to avoid losing out.
This could become complicated if you receive income from multiple sources, for example, shares and savings.