UK Firms Pay Dividends Early to Minimize Taxes

April 26, 2010 Taxation in UK

Big Ben clock faceUK based companies are opting to make early than scheduled dividend payouts in order to avoid increased personal taxation obligations for recipients.

On April 26th UK company registrar firm Capita Registrars released a report indicating that many UK companies are opting to make early dividend payments, in order for shareholders to avoid the recent top personal-tax rate increase. On April 6th the marginal tax rate for taxpayers earning above GBP 150 000 rose to 50 percent, from the previous level of 40 percent. An estimated GBP 842 million in dividend payments were brought forward. The report cited largely anecdotal evidence to support its assumption. Although, it was also revealed that many of the firms making early than scheduled payouts in 2010 deviated from the payment schedule they had adhered to for several years.

Throughout the first quarter of 2010 a total of GBP 13.6 billion was paid out to shareholders by 186 different firms. Approximately 10 percent of the paying companies were expected to make issue their dividends in the second quarter, after the tax increase. As the tax status of recipients is unknown, the total impact of UK Government revenues is estimated by Capita Registrars to be approximately GBP 85 billion.

Paul Taylor, Head of Dividends at Capita Registrars, elaborated on the report, saying that the firms opting to bring forward their payments were relatively small. He explained that lower-capital firms are more likely to be owner-managed, which would serve to increase personal interest in early payments and decrease administrative difficulties. Conversely, large firms are expected to bring forward a portion of their staff’s personal payments to avoid the tax increase. It is also anticipated that timing of staff bonus payments by companies will be altered to avoid the UK Government’s current temporary 50 percent bonus-payment tax.

Photo by Ben Sutherland