Business Buying shares in another Business
Discussion
Since April 1999, dividends are paid without ANY tax deducted. Although a 10% tax credit is shown attached to every dividend, this 10% Tax is purely notional - it doesn't exist. Therefore , no tax refunds can be generated from "reclaiming" this "notional" tax.
Individuals pay no tax on dividends until their personal income for the year takes them into the higher rate tax bracket. When they do reach that threshold, tax is levied on that element of the dividend that falls into the higher rate bracket at a rate of 32.5% (rather than the normal 40%). For the same reason, a company RECEIVING dividend income will actually not pay any Corporation Tax on the dividend income RECEIVED from another company unless their total income for the year takes them into the higher Corporation Tax bands - and don't ask me what they are because I would have to start looking things up.
If one company owns shares in another company, iut is creating an "association" between the two companies. If it owns more than 75% of the shares in another company, that other company becomes a subsidiary. There are very complicated accounting and taxation rules regarding associated and subsidiary companies. Please bear that in mind if you wish to use your company to acquire shareholdings in other companies.
Individuals pay no tax on dividends until their personal income for the year takes them into the higher rate tax bracket. When they do reach that threshold, tax is levied on that element of the dividend that falls into the higher rate bracket at a rate of 32.5% (rather than the normal 40%). For the same reason, a company RECEIVING dividend income will actually not pay any Corporation Tax on the dividend income RECEIVED from another company unless their total income for the year takes them into the higher Corporation Tax bands - and don't ask me what they are because I would have to start looking things up.
If one company owns shares in another company, iut is creating an "association" between the two companies. If it owns more than 75% of the shares in another company, that other company becomes a subsidiary. There are very complicated accounting and taxation rules regarding associated and subsidiary companies. Please bear that in mind if you wish to use your company to acquire shareholdings in other companies.
Individuals pay no tax on dividends until their personal income for the year takes them into the higher rate tax bracket. .[/quote]
So if a company owner pays himself a salary of £10,000 and dividends of £20,000 a year does that mean he only pays tax on the £10,000 salary, although his income is £30,000 and consequently below the high rate tax bracket.
Or am I just being a bit dim?
Although there is no real tax on the dividend, the £20,000 (Deemed) Net Dividend is "Grossed" up for tax calculation and therefore becomes £22,222.22. Therefore your combined income for the year in your example is £32,222.22. Taking off your persoanl allowance of £5,035, this leaves you with taxable income of £27,187.22, comfortably below the Higher Rate Bracket.
Tax on the dividend of £22,222.22 is therefore ignored and will only be charged on the £10,000 salary - £2,150 @10% and £7,850 @22%.
Thre are other factors to consider.
Dividends are not allowable expenses as far as companies are concerned so will not serve to reduce the company's taxable profits.
Salaries are.
Salaries are subject to National Insurance liabilities (employee's and employer's) - dividends are not.
Tax on the dividend of £22,222.22 is therefore ignored and will only be charged on the £10,000 salary - £2,150 @10% and £7,850 @22%.
Thre are other factors to consider.
Dividends are not allowable expenses as far as companies are concerned so will not serve to reduce the company's taxable profits.
Salaries are.
Salaries are subject to National Insurance liabilities (employee's and employer's) - dividends are not.
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