Tax changes mean that the choice between paying dividends or taking a bonus is narrowing, especially as corporation tax rises to 25% from April. Stephen Relf, content manager – tax at Croner-i, explains the pros and cons
Dividend versus bonus is an important tax planning exercise for the owner-managed company but for some time it’s been largely academic as the dividend has had the edge in most circumstances.
However, changes made in recent years have narrowed the gap between the dividend and bonus, and from April – when the main rate of corporation tax increases by six percentage points from 19% to 25% – the dividend’s advantage can no longer be taken for granted.
In this article, I’ll look at how to determine which of the dividend and the bonus is the most tax-efficient in your circumstances. Please do remember that there are other considerations, including the company law requirements relevant to dividends. For the full picture, please follow the links below to guidance from Croner-i.
