Ltd Dividends

stphnstevey

Have I got this right?

Ltd pay 19% Corp Tax on Dividends

The receiver of the dividend will pay
a) No tax on dividend upto upper tax limit (as tax credit of 10% - covers 10% tax rate)
b) Above upper tax limit - 22.5% (32.5% - 10% tax credit)

TaxGeek

Broadly. A limited company (with profits below £300k) will pay tax at 20% currently (was 19% last year), raising to 21% from April 08 and 22% from April 09. The tax is payable on all profits, not just those paid as dividends.

The recipient (assuming it's an individual) pays no tax up to the upper limit because of the 10% credit, and pays tax at an effective rate of 25% on any above the upper limit. (The dividend is grossed up by 10%, hence the effective rate becomes 25% not 22.5%).

stphnstevey

So a Ltd only gets taxed once at 20%, then the profits can be taken as dividends

The company doesn't get charged another 20% on the dividend paid?

TaxGeek

Correct, the company only gets taxed once, as corporation tax on its profits.

chappers

If you however take out dividends over £36K then you get charged income tax at 32.5% on everything over the £36K, but you already have a 10% tax credit to make up your total dividend income so the effecticve rate is 22.5%.
This 10% credit cancels out the 10% rate you pay on dividends upto £36K hence why no further tax is due on this amount.