The tax payable on dividends is set to rise from 7.5% to 8.75% for basic rate taxpayers from 6 April 2022.

Higher rate taxpayers will pay 33.75% (currently 32.5%) on dividends and additional rate taxpayers must budget for dividend tax of 39.35% (currently 38.1%). These rates will apply to all dividends taken from all companies where the total dividend income exceeds the dividend allowance which has been held at £2,000.

This tax increase is significant. A shareholder/director who takes a salary of £12,570 and dividends of £37,700 per year will see their personal tax and NIC bill increase by £442 in 2022/23. That is an increase in the amount of tax and NIC paid of nearly 14.5%.

If you borrow from your company and leave the loan outstanding for more than nine months after the accounting year-end, the company must pay a tax charge of 32.5% of the loan. This tax rate may well also increase in April 2022 to match the dividend tax rise, but this is as yet unconfirmed.

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