Have I understood dividend tax correctly?

theburningcat

I do not fully understand the new dividend tax in the context for a sole director/shareholder. It seems like your PAYE income PLUS dividend income dictates the amount of tax, and that for income below £32,001, the the sensible option is to exhaust allowances, then pay it as dividends. Above £32,000, the sensible option for that part is to pay it via PAYE.

I am the sole director/shareholder. I will draw about £40k in the current tax year. My interpretation of this is:

- £4500 (to pay off the director's loan account)
- £11000 (via PAYE and exempt due to personal allowance)
- £1100 (via PAYE and exempt due to marriage allowance)
- £5000 (via dividend and exempt due to dividend allowance)

£18,400 (i.e. total minus director's loan account, minus dividend allowance) is taxed at the new 7.5% dividend tax (and not subject to income tax at all).

Have I understood this correctly?

polymaff

theburningcat wrote: »

I do not fully understand the new dividend tax in the context for a sole director/shareholder. It seems like your PAYE income PLUS dividend income dictates the amount of tax, and that for income below £32,001, the the sensible option is to exhaust allowances, then pay it as dividends. Above £32,000, the sensible option for that part is to pay it via PAYE.

I am the sole director/shareholder. I will draw about £40k in the current tax year. My interpretation of this is:

- £4500 (to pay off the director's loan account)
- £11000 (via PAYE and exempt due to personal allowance)
- £1100 (via PAYE and exempt due to marriage allowance)
- £5000 (via dividend and exempt due to dividend allowance)

£18,400 is taxed at the new 7.5% dividend tax (and not subject to income tax at all).

Have I understood this correctly?

Arithmetically correct - although the £1100 will be taxed at basic rate then rebated due to MAT in your tax account.

There is no such thing as Dividend Tax, though. The tax an individual pays on dividends received is Income Tax.

Just like there is no such thing as Savings Tax.