Tax Code 2016/17

[Bazza500]

I am the director and sole shareholder of a company. I pay myself £150 per week and collect rent on a shop of £2500 per annum. I then take dividends but not enough to pay 40% tax.

I have just had my tax code notification for next year and it is 28L.

It starts at £11,000 ( which is the personal allowance) and then is reduced by £2500 for property income which I understand, but it is also reduced by £8212 for "dividend tax". Can anyone explain why this is the case?

At this code I can only earn £288 before paying tax next year.

 

[Bob]

You will have a tax liability on the new dividend tax as your dividend exceeds £5,000.
The restriction to your code number is intended to collect approximately the tax that will be due from your salary on a weekly basis throughout the tax year

 

[Bazza500]

Thanks Bob, that makes sense. I was expecting to pay a lump sum at the end of January but I can see what they are doing. Although they are assuming the dividends will be the same as last year.

Oh well, here goes for living on £121.08 a week

 

[David Griffiths]

There was a box on your last tax return to tell HMRC that you don't want tax on income other than employment income collected through your tax code. You presumably didn't notice or tick that. You can tell HMRC to leave out the adjustments from your code so that you pay tax on rents and dividends through your normal self assessment.

You'll still have to pay the tax, but directly based on your tax return rather than through your code

 

[Bazza500]

Thanks David. My accountant fills in my tax returns so either forgot or decided to go this route. I'll have a word with him and see what he thinks is best. It seems it makes little difference unless there is a large difference in dividends taken from year to year.