How much more dividend to take out to be tax-efficient?

[TheFaQQer]

Possibly, but I think it's a red herring at best. If HMRC had concerns about dividends, I don't know why they'd focus on one at the end of a tax year (which they'd only know about during an investigation). Surely they'd want to see your dividend paperwork for all dividends issued? Arguing that the total dividend could flag something or that the change between years could flag something has the merit of being internally consistent (if unimportant IMO). Talking about the timing of a specific dividend doesn't IMO and I suspect it flags a misunderstanding of the info. available to HMRC, along the lines of UK Contractor Accountant.

I agree

[Yorkie62]

For what it is worth here is some generic advice I received today from my accountant

With less than a month until the new tax year, and the upcoming changes to the dividend tax rates, now is the last opportunity to consider tax planning to manage your potential exposure to higher rates of dividend tax.

Dividend Tax Changes
In the new tax year the way in which income tax is calculated on dividends will change. The changes are summarised below:
• the existing 10% tax credit will be scrapped and the (sometimes confusing) concept of net and gross dividends will disappear with this;
• a £5,000 tax free dividend allowance will be introduced and dividends declared in excess of this will be taxed at the following rates:
o dividends in the basic rate will be subject to income tax at a rate of 7.5% (previously an effective rate of 0%);
o dividends in the higher rate will be subject to income tax at a rate of 32.5% (previously an effective rate of 25%); and
o dividends in the additional rate will be subject to income tax at 38.1% (previously an effective rate of 30.6%).

Despite the higher rates of tax, a limited company remains the most tax efficient way of to trade as a contractor. The importance of saving money for taxes from each dividend will become more relevant as additional tax will become due at a much lower income level.

Those that ordinarily declare dividends up to the higher rate tax threshold will find that their liability for tax increases beyond £1,000 for the first time. Should this be the case, HMRC will require you to make further payments on account (in advance) at 31st January and 31st July in respect to the following year’s liability.

Accelerated Dividend Payments
The increased rates of tax payable from next year means that, for many, it will be worth accelerating the payment of dividends so that they fall within the 2015/16 tax year and are taxed under the current dividend tax regime. This is particularly relevant if your income regularly exceeds the higher rate threshold, or if you hold large cash reserves for distribution in future years (note that increasing taxable income beyond £100k will not be worthwhile).

Example
A contractor declares dividends to the higher rate threshold each year so not to incur additional tax on dividends, any excess profit is retained in the company for future tax years. In 2015/16 the same strategy has been followed, leaving £50k of profit in the company. Declaring the £50k in 2015/16 will give rise to an income tax liability of £12,500 whereas declaring the same amount (in excess of the higher rate tax liability) in 2016/17 will give rise to an additional income tax liability of £16,250. In this example, accelerating the payment of dividends will save the contractor £3,750.