Dividend Taxation.

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Olf

Original Poster:

11,974 posts

224 months

Thursday 26th July 2007
quotequote all
Please correct me if I'm worng in the following example which is my understanding of Corp Tax and Div Tax Credits.

Say my Company makes a taxable profit of £10,000.

The small co. CT on this is 19% so, my co. puts aside £1,900 for that liability. That leaves a net profit of £8,100.

If that profit were then to be distributed via dividends to shareholders then the company would alrady have paind all necessary taxes and the 10% dividend tax credit is rolled up in the Corp Tax. In other words the whole 8,100 is distributable with an assumed tax credit of £810 which does not need to be put aside as it was already included within the Corp Tax...


emicen

8,706 posts

224 months

Thursday 26th July 2007
quotequote all
Good question Olf, I'd quite like to know the answer to that one aswell!

Would point out the corporation tax rate for small companies this year is 20%, was 19% in 2006.

Edited by emicen on Thursday 26th July 10:30

Olf

Original Poster:

11,974 posts

224 months

Thursday 26th July 2007
quotequote all
emicen said:
Good question Olf, I'd quite like to know the answer to that one aswell!

Would point out the corporation tax rate for small companies this year is 20%, was 19% in 2006.

Edited by emicen on Thursday 26th July 10:30
good point well made!

Olf

Original Poster:

11,974 posts

224 months

Monday 30th July 2007
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Anyone?

Vixpy1

42,670 posts

270 months

Monday 30th July 2007
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I believe its 10% corp tax up to 10K , Also depends on your personal situation as you will have to pay more tax if you earn over 35K or so a year on your divdend

But its really an Eric MC question

Eric Mc

122,789 posts

271 months

Monday 30th July 2007
quotequote all
Small company Corporation tax rate is currently 20% (and it is rising each year for the next two years by 1% per annum until it reaches 22%).

Profits between £300,000 and £1,500,000 are taxed at 32.5%

Profits over £1,500.000 are taxed at 30%

Dividends are shown with a tax credit of 10%. This DOES NOT mean they are taxed at 10%. In fact, they are not taxed at all (up to a point). The company does not do any paying of tax in respect of dividends paid. If (say) it pays a dividend of £10,000, then it pays this money to the shareholder(s) and does not have to worry about paying over any related tax.

The shareholder receives his £10,000 dividend and it will show a Tax Credit of £1,111.11. When that individual is completing their personal Self Assessment tax return, they will declare the dividend as follows:

Gross Dividend £11,111.11
Tax Credit £1,111.11
Net Dividend £10,000.00

They are assessed for income tax purposes on the GROSS amount i.e. £11,111.11. If their overall income for the relevant tax year does not put them into the Higher Rate tax bracket (around £38,000 at the moment) - they have NO Income Tax liability arising on the dividend.
If all or some of their income for the tax year is in the Higher Rate bracket, than some or all of the dividend will be taxed at the Higher Rate.

The final twist in this convoluted tale is that, although the "normal" higher tax rate is 40%, for dividends, it is actually 32.5%

Don't forget that the company's Corporation Tax liability is calculated on the company profits BEFORE any dividends have been deducted.



kryten22uk

2,347 posts

237 months

Monday 30th July 2007
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Eric Mc said:
Small company Corporation tax rate is currently 20% (and it is rising each year for the next two years by 1% per annum until it reaches 22%).

Profits between £300,000 and £1,500,000 are taxed at 32.5%
Does that mean that if a company has £1m profits, it pays £325k tax, or 20% on £300k, and 32.5% on £700k?

Olf

Original Poster:

11,974 posts

224 months

Monday 30th July 2007
quotequote all
Thank you very much Eric. A clearer answer one could not hope for!

Stephanie Plum

2,792 posts

217 months

Monday 30th July 2007
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Eric - you are a star. My acct has just done my books this last week calculating both my corp tax and my income tax, and has told me I'm paying less than I had put by. You've just explained why without my having to ask him and come across as a complete berk. Thank you.