As I'm sure you're aware the much heralded dividend tax comes into force with effect from 6 April 2016. It will apply to all dividends received in excess of £5,000 per tax year (regardless of whether from listed investments or your own company). All of this means that an average company director taking a modest salary within his personal allowance, and the rest of his income from the company as dividends, will pay more tax in 2016/17 than he did in 2015/16.
This additional tax would be payable, under self-assessment by 31 January 2018, as the balancing payment for that tax year. However, it would seem that HMRC does not want to wait for the extra tax in the Treasury's coffers, and it's solution to improve the nation's cashflow has been to amend the tax codes of many company owner/directors to effectively collect "at source" an estimated amount based on the previous year's returned figures.
The deduction in a client's PAYE code is to be labelled as ‘dividend tax’, and the notes on the P2 (PAYE coding notice) will say: "this is to collect the basic rate of tax due on your dividend income".
The net result of this is that a lot of company owner/directors will suddenly start to see tax being deducted from their salaries (which are typically below the tax free personal allowance). Unfortunately, this is just another underhand smash and grab by HMRC and the Treasury on the pocket of private business!
You can contact HMRC by telephoning them on 0300 200 3300 or complete an online coding notice query here. Alternatively, although not as quick as the two previous methods, you can write to HMRC at:
Pay As You Earn and Self Assessment
HM Revenue and Customs
BX9 1AS
