The current rule means that dividends paid to employee shareholders are liable to Class 1 ‘employed’ contributions. This is to prevent a downward manipulation of the employee’s salary in favour of dividend payments to avoid social security contributions.
This rule applies to dividends received by the employee from their immediate employing company. However, the rule is now being extended to include any dividends received from a holding company (of the immediate employing company).
This is to prevent dividends being paid up to the holding company and then on to the employee thus avoiding contributions.
The department are referring to such holdings companies as ‘associated companies’. This term has not yet been specifically defined but should be clarified by them over the coming weeks.