The government’s recent announcement that it would increase both the dividend tax and National Insurance by 1.25% has been described as another blow to business owners, particularly those that are already struggling as a result of supply chain disruption, labour shortages and the ongoing impact of the pandemic.

What are dividends?

A dividend is a payment of profits (after corporation tax) to shareholders of a company. Business owners can pay themselves through a salary or dividend, or a combination of the two. Profits extracted from the company can be spent freely, whereas funds reinvested must be applied wholly and exclusively for the benefit of the company.