Companies make early dividend payments

UK companies brought forward over £840 million in shareholder dividend payments ahead of the end of the tax year.

Capita Registrars, a research group, estimated that a significant number of companies made early dividend payments in order to beat the 6 April deadline when the higher rate of income tax rose from 40 per cent to 50 per cent.

According to the research, some 200 major companies paid out dividends to investors between the beginning of 2010 and 5 April.

Of the companies that made payments, totalling £13.6 billion, some 10 per cent had paid dividends at a later stage last year.

However, the majority of the UK’s largest firms were more likely to have advanced bonus payments to staff in order to get ahead of the tax rise rather than grapple with the administrative intricacies of rearranging the schedules for dividend payouts, Capita Registrars suggested.

Paul Taylor, head of dividends at Capita Registrars, said: “Some smaller stocks may have brought forward their dividend payments to the 2009/10 tax year deliberately to beat the 50 per cent top rate.

“Smaller companies are more likely to have owner-managers who have greater flexibility over how they provide returns to themselves and other shareholders, and therefore potentially greater motivation to beat the tax hike.”

In bringing dividend payments forward to the first quarter, companies actually improved the overall value of payouts during the first three months of the year. The total for 2010 was only 2.5 per cent less than the same period a year ago and is the lowest rate of decline since the UK economy entered recession.

However, Capita Registrars warned that the improvement should not be misinterpreted as a signal that corporate profitability is beginning to recover. Taking one-off early payments into account, dividend payments were down by 7 per cent in the first quarter of the year.

The value of dividends paid by FTSE-100 companies dropped by 8 per cent during the period, although payments made by companies in the FTSE-250 were up by 2 per cent compared with 12 months ago.

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