"Dividend tax credits" for contract income - still applicable?

temega463

Hello MSE forum community. Once again I would like some guidance on a tax question. Thanks in advance.

I am preparing my 2024/2025 tax return. In this tax year I paid myself a dividend as a result of winding up a company I used for ex-IR35 contract income back in 2015/2016. I've read some references to tax credit on dividends e.g. https://www.contractorcalculator.co.uk/contractor_guide_dividends_dividend_tax_credits.aspx - the gist seeming to be one need not pay more in corporation tax + dividend tax than if that money had been earned as income tax. However I've also come across this article indicating such scheme was terminated in 2016 in lieu of a new dividend allowance: TIIN_Dividends_Allowance_-_updated.pdf Of course that allowance is now much smaller.

I can't find any up-to-date material on this on HMRC website, and therefore assume there is no longer any such scheme and my dividend payment will be taxed at the regular dividend tax rates (8.75% / 33.75% / 39.35%) with a £500 dividend allowance, irrespective of any corporation tax having previously been paid on the dividend source funds.

Confirmation or correction / clarification much appreciated.

Dazed_and_C0nfused

temega463 said:

Hello MSE forum community. Once again I would like some guidance on a tax question. Thanks in advance.

I am preparing my 2024/2025 tax return. In this tax year I paid myself a dividend as a result of winding up a company I used for ex-IR35 contract income back in 2015/2016. I've read some references to tax credit on dividends e.g. https://www.contractorcalculator.co.uk/contractor_guide_dividends_dividend_tax_credits.aspx - the gist seeming to be one need not pay more in corporation tax + dividend tax than if that money had been earned as income tax. However I've also come across this article indicating such scheme was terminated in 2016 in lieu of a new dividend allowance: TIIN_Dividends_Allowance_-_updated.pdf Of course that allowance is now much smaller.

I can't find any up-to-date material on this on HMRC website, and therefore assume there is no longer any such scheme and my dividend payment will be taxed at the regular dividend tax rates (8.75% / 33.75% / 39.35%) with a £500 dividend allowance, irrespective of any corporation tax having previously been paid on the dividend source funds.

Confirmation or correction / clarification much appreciated.

That article (the first link in your post) is over 19 years old.  Rules changed with effect from April 2016.

There is no "allowance" for dividends.  But there is a 0% rate band, confusingly this is commonly known as the Dividend Allowance.

In the current tax year this is £500 (taxed at 0%).

The dividend nil rate band can only be used once your Personal Allowance has been used.

temega463

Thank you Dazed_and_C0nfused, clear and helpful.