Corp Tax / Dividend

kiethlard

My company has £50K profit.

It pays 20% (approx) of 50K in corp tax.

It issues £40K as dividends to 4 shareholders.

this is where I get confused...

Each shareholder gets £10K. Voucher shows £10K + 1K tax credit.

If share holders earnings + £10K is less than upper level for basic rate of tax, then no liability for shareholder.

Right / Wrong?

spursboy

kiethlard wrote: »

My company has £50K profit.

It pays 20% (approx) of 50K in corp tax.

It issues £40K as dividends to 4 shareholders.

this is where I get confused...

Each shareholder gets £10K. Voucher shows £10K + 1K tax credit.

If share holders earnings + £10K is less than upper level for basic rate of tax, then no liability for shareholder.

Right / Wrong?

The £1k on the dividend is a "notional" tax credit.

There are two rates of tax on dividends depending on the level of your income - basic rate at 10% and higher rate at 32.5%.

If your income including the dividend is basic rate then no further tax will be due as you are deemed to have paid 10% (i.e. the notional bit)

If your total income puts you in the higher rate bracket the you will be charged to tax at 32.5% on the whole dividend (inc. "notional" tax credit) but then you take the notional tax off the liability (ends up being taxed at 25% or so)

Pennywise

kiethlard wrote: »

If share holders earnings + £10K is less than upper level for basic rate of tax, then no liability for shareholder.

Not quite, you need to add £11k to your other earnings, i.e. the gross dividend, not £10k net dividend.

johnllew

spursboy wrote: »

If your total income puts you in the higher rate bracket the you will be charged to tax at 32.5% on the whole dividend (inc. "notional" tax credit) but then you take the notional tax off the liability (ends up being taxed at 25% or so)

Not quite; only that proportion of the gross dividend that exceeds the basic rate band will suffer tax at the higher rate.

MrBeans

kiethlard wrote: »

If share holders earnings + £10K is less than upper level for basic rate of tax, then no liability for shareholder.

Right / Wrong?

Right. If you say + 11.111K. The 10% is 10% of the gross divi. A net divi of £10K is a gross divi of £11,111.

spursboy

johnllew wrote: »

Not quite; only that proportion of the gross dividend that exceeds the basic rate band will suffer tax at the higher rate.

Apologies... I meant if income, before the dividend puts you in the higher tax bracket!

stphnstevey

They like to make things hard for you to work out how to avoid tax....