6 Jun 2012

SMEs delay dividends for tax drop

SMEs will defer shareholder dividend payments in order to take advantage of the coming drop in higher rate tax, according to Wilkins Kennedy

The top-25 accountancy firm has said that owner-managed companies have begun to push back dividend payments, and other SMEs will follow suit.

Putting dividend payments on hold until the 45% tax rate comes into effect on April 6 2013 will net shareholders substantial tax savings, the firm said.

The change to the top rate of tax will cause the rate on dividends to fall from 42.5% to 37.5%. The effective rate on dividends, adjusting for tax credits, will drop almost 6%, to 30.56%, according to Wilkins Kennedy.

The firm also predicts that while the delay in payment of dividends is more likely to come from private companies, the trend could also continue to AIM-listed companies.

Wilkins Kennedy Tax Director, Jeremy Newman, said: “Since the budget announcement of the reduction in the higher rate tax we have had a growing number of businesses ask us about deferring their dividend.”

“The potential savings are pretty substantial”, Newman explained, “and any company where the business is mainly owned by private investors should be considering the pros and cons.”

Deferring dividend payments in this way is a “simple straightforward and legitimate tax mitigation strategy”, Newman added, “which if done correctly, HMRC should have absolutely no issue with.”


Tom Stevenson