Sole Traders Vs Company Structure

The dividend allowance is not an allowance at all despite its name, and is rather a 0% rate of tax that applies to the first £2,000 of dividend income currently received by an individual taxpayer each year.

This has several tax and cash flow implications.

  1. First of all, setting the allowance as a nil rate of tax could pave the way for the rate to be increased easily in future finance acts. 
  2. Second, the dividend allowance does not reduce an individual’s taxable income for the purposes of various thresholds such as the high income child benefit charge (£50,000), withdrawal of the personal allowance (£100,000), and tapering of pension tax relief (£110,000). 
  3. Finally, the dividend allowance is deducted from the first £2,000 of dividend income, even if this may not be to the taxpayer’s advantage