Tax payable on a dividend

[edtvr]

This is really 6issing me off tonight, this afternoon I received notification from my accountant no how much tax I owe from receiving a directors dividend.
Is there any accountants out there who can explain how they calculate the tax liability on a dividend payout.
I tried my accountant this evening but he had already left.
I need piece of mind tonight or I wont sleep a wink, its driving me crazy

Edtvr

[2 sMoKiN bArReLs]

You pay 25% of the cash received.

(In fact 32.5% of your cash divi grossed up by 10%, less the 10%)

[2 sMoKiN bArReLs]

If you get £100

You pay £25.

Which is actually £100 divided by 90% = £111.11 @ 32.5%

= £36.11

Less the notional tax of £11.11

= £25

[mybrainhurts]

Ahhh, tax....makes you feel warm all over.

[2 sMoKiN bArReLs]

But, Eric will be along soon to give you a better answer.

[2 sMoKiN bArReLs]

And I assume you mean shareholders dividend.

[edtvr]

So as an example I received 10K in tax year ending april 05.
I should be paying 2.5K by next Tuesday?

Edtvr

[2 sMoKiN bArReLs]

..and I assume you already pay tax at the higher rate

>> Edited by 2 sMoKiN bArReLs on Thursday 26th January 21:47

[edtvr]

2 sMoKiN bArReLs said:

And I assume you mean shareholders dividend.

Yes

[edtvr]

2 sMoKiN bArReLs said:

..and I assume you already pay tax

Yes,

PAYE and CT

[alfaman]

2 sMoKiN bArReLs said:

You pay 25% of the cash received. (In fact 32.5% of your cash divi grossed up by 10%, less the 10%)

are "directors" divi's different ? and wouldn't the tax depend on personal tax bracket ?

For normal shareholders divi's the additional tax is nil for basic rate tax payers ( allowing for 10 % divi tax credit ) , but there is additional tax due for higher rate tax payers )

(just having done my tax return )

[2 sMoKiN bArReLs]

www.direct.gov.uk/MoneyTaxAndBenefits/Taxes/TaxOnSavingsAndInvestments/TaxOnSavingsAndInvestmentsArticles/fs/en?CONTENT_ID=4016453&chk=FuPP1L

[catso]

Should be 10%.... if you've got a good accountant

[2 sMoKiN bArReLs]

catso said:

Should be 10%.... if you've got a good accountant

Or nowt

[2 sMoKiN bArReLs]

edtvr said:

So as an example I received 10K in tax year ending april 05. I should be paying 2.5K by next Tuesday? Edtvr

Only if you pay tax at the higher rate.

[Jaglover]

2 sMoKiN bArReLs said:

You pay 25% of the cash received. (In fact 32.5% of your cash divi grossed up by 10%, less the 10%)

That is correct if you are a higher rate tax payer.

If you are a basic rate tax payer receiving a dividend results in no additional tax liability.

[edtvr]

I can't understand why the amount due is more like 36% of the sum I have received,
I had believed it was around the 25% mark,
I just have to drink some scotch tonight and ring him in the morning.

Thanks Steve, I always guessed from the witty comments on your posts that you were a clever sod

[2 sMoKiN bArReLs]

edtvr said:

I can't understand why the amount due is more like 36% of the sum I have

T'aint.

It's 25% of wot you got if you pay tax at 40%

or

nowt if you pay tax at basic or lower

[srebbe64]

It is damn confusing, it has to be said. I would have thought the Government, with their infinite resources, could come up with a simpler system.

What really confuses me is the whole calculation about whether to pay bonuses or dividend. My Tax advisor explains this really complicated formula to me which factors in Corp Tax, Div Tax, PAYE, NI and Employers NI. He tells me that I'm 2% better off paying myself by way of bonus rather than Dividend. I haven't got a damn clue if he's right or wrong - I just do whatever he suggests!

>> Edited by srebbe64 on Thursday 26th January 22:04

[2 sMoKiN bArReLs]

srebbe64 said:

It is damn confusing, it has to be said. I would have thought the Government, with their infinite resources, could come up with a simpler system. What really confuses me is the whole calculation about whether to pay bonuses or dividend. My Tad advisor explains this really complicated formula to me which factors in Corp Tax, Div Tax, PAYE, NI and Employers NI. He tells me that I'm 2% better off paying myself by way of bonus rather than Dividend. I haven't got a damn clue if he's right or wrong - I just do whatever he suggests!

That's another box of frogs! For a company paying small company rate of CT I reckon the rule of thumb is dividend is better (ignoring pension considerations). For those paying full rate, then as you say it's marginal.