Higher rate tax on dividends

MickKnipfler

Can somebody please explain in plain english how tax for both the company and the individual works on dividends once over the 40% threshold?

MickKnipfler

Can anybody help please?

fguk

Interesting question.

Can your accountant not answer it?

I am only guessing here (but as you are desperate for an answer). Income over and above the threshold must be taxed at the higher rate.

So you pay corporation tax upto the threshold (well, the company does anyway), then the higher rate through personal taxation on what is over and above that?

Sorry to be guessing, hopefully someone clever will be along soon.....

Aark

For the company:

No tax effect. The dividends are paid out of profits after Corporation Tax due has been deducted.

For the recipient:

If the dividends fall wholly in the higher rate band, then Income Tax of 25% of the amount received will be due.

MickKnipfler

Thanks. So the company pays 20% on the gross amount (as it does on it's profits. Then does the company stop the 25% or does it just pay it gross and you put it on your tax return?

Is the 25% right? I read somewhere it was 32.5% but there was a 10% credit. That really confused me.

richt71

Kind of confused where you're going with this? Dividends are tax free but you first need to pay corporation tax at 22% on your profits to take dividends. You can of course be an employee of your own company and recieve the allowance of £4,500 per annum or whatever it is and then get taxed as per normal income tax at 20% and 40% plus NI.
I'd suggest you speak to accountant to structure the best way for you to get paid from your company.

MickKnipfler

Sorry I thought the question was quite simple. I just wanted to understand the tax liability for both the company and the individual once the 40% tax band was reached. I understood Corp Tax to be 20% (Just increased from 19%) not 22%?

OK, let's work an example....

Say over the 40% threashold, the company makes £10k gross profit that has been declared as a dividend. Corp Tax is payable (if 20%) this then makes £10k-£2k=£8k gross to the individual. Where do we go from here? I understood there was then a higher rate tax available on dividends but then a 10% tax credit comes into play but I don't know the figures or how it works.

I will speak to my accountant once I understand the basic mechanics as I also have the opportunity to pay into a pension of course.
Thanks again

ukbill69

Corp tax is only when you have big profits. You pay 20% or used to 19% in a dividend to yourself, you then fill out a dividend form.

Speak to your accountant!

ukbill69

See this for corp tax rates:

http://www.hmrc.gov.uk/rates/corp.htm

richt71

MickKnipfler wrote: »

Sorry I thought the question was quite simple. I just wanted to understand the tax liability for both the company and the individual once the 40% tax band was reached. I understood Corp Tax to be 20% (Just increased from 19%) not 22%?

OK, let's work an example....

Say over the 40% threashold, the company makes £10k gross profit that has been declared as a dividend. Corp Tax is payable (if 20%) this then makes £10k-£2k=£8k gross to the individual. Where do we go from here? I understood there was then a higher rate tax available on dividends but then a 10% tax credit comes into play but I don't know the figures or how it works.

I will speak to my accountant once I understand the basic mechanics as I also have the opportunity to pay into a pension of course.
Thanks again

sorry a bit of a typo by me..yes 20% small business tax. needs structuring right though. £8k would be it if you took dividends.

MickKnipfler

Ok but then what would the personal tax liability be on the £8k?