Silly share question

[aceparts_com]

OK, just need to clarify this in my pea sized brain....

Company X makes 100K pa profit (after tax for clarity)

Person A owns 30%

B owns 70%

A has taken his £30K dividend

B doesn't take his as he already has an income from other sources. Would this pose any problems for any reason?

[JamieBeeston]

IAMAA but iirc Person B must take their dividend unless a dividend waiver has been signed forgoing their right to any dividends.

J

[percy flage]

Director's Loan Account?

[JamieBeeston]

percy flage said:

Director's Loan Account?

Needy to be repaid one day and cant be for that much iirc

[aceparts_com]

Maybe the 100K was a over quoting the facts but for simplicities sake.... Basically person B doesn't need this money and he'll get taxed at 40% but maybe next year things will be different with his income.

It's nice to get different perspectives before ringing the accountant

[deva link]

aceparts_com said:

Maybe the 100K was a over quoting the facts but for simplicities sake.... Basically person B doesn't need this money and he'll get taxed at 40% but maybe next year things will be different with his income.

You don't pay tax at 40% on dividends. It's effectively 32.5%. There are NI savings, too, especially for the company.

[aceparts_com]

Sorry, what I meant is that person B has already earnt his full allowance therefore any further income will be taxed at 40%

[Eric Mc]

Dividend income which falls into the Higher Rate Tax band is taxed at 32.50% rather than the normnal 40%. There is no NI liability either.

If the shareholder does not want to "draw" his dividend entitlement, he can waive all or part of the amount due to him. Please note that, once waived, the entitlement to that particular payout is lost forever. Do you really want to do this?

If the dividend is allocated to the shareholder's "Directors Loan Account" (assuming he is also a director), rather than a cash amount being drawn from the company bank, the dividend is "deemed" to have been physically paid on the date it was allocated to the loan account and the relative tax will be due and payable on it.

[aceparts_com]

Thanks Eric, that makes sense

So, (brain really is dead here) B has already taken income to the 40% tax bracket (say 35K) and a further £50K dividends are taken, how much extra tax is due % on the 50K?

[aceparts_com]

Problem solved. Found this:

www.pkf.co.uk/web/survey.nsf/DT2006!OpenForm&Seq=1

Tax calculator for owner managed Ltd companies

[Eric Mc]

Multiply the £50,000 Dividend by the Higher Rate Dividend tax rate of 32.5% to find out how much tax is due.

[deva link]

Eric Mc said:

Multiply the £50,000 Dividend by the Higher Rate Dividend tax rate of 32.5% to find out how much tax is due.

Of course this isn't the fabulous deal it seems, as the dividend is paid from the company's after tax profits, which (probably in the OP's case) will have been taxed at 19%.

[Eric Mc]

True, of course. The total tax payable will include the Personal Income Tax element and the Corporation Tax element.