Dividend Taxation.
Discussion
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...
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...
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.
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.
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?Profits between £300,000 and £1,500,000 are taxed at 32.5%
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