Higher rate personal tax on dividends

**rootsnall** · 11 December 2006, 11:51

The higher rate tax issue will only kick in when you do your annual personal tax return ie. probably this time next year. Your Ltd Co accountant should be upto speed with all this !?

I do my self assesment online and everything is calculated for you as you enter your salary and dividend figures.

**Sockpuppet** · 11 December 2006, 12:09

Originally posted by Swamp Thing

This is arrived at as £33,300 basic/higher rate threshold + £5,035 personal allowance = £38,335. Subtract £36,111 current income = £2,224.

I thought that £33,300 was including the £5,035?

I thought that the first 5k was tax free, the next 28k @ 24% and anything over at 40%?

**Nixon Williams** · 11 December 2006, 12:34

Originally posted by Swamp Thing

Can I get some advice on this board re. the amount of higher rate personal tax triggered on dividends?

My situation: For the 2006-07 tax year my salary will end up being £25K. No smart comments on this please – I have reasons for taking this much this year. Add to this an interim gross dividend already taken of £11,111. This brings my overall running income up to £36,111 for the year. I am now calculating that I have £2,224 left which is not subject to higher rate tax. This is arrived at as £33,300 basic/higher rate threshold + £5,035 personal allowance = £38,335. Subtract £36,111 current income = £2,224.

Now, having taken off the appropriate amount for corporation tax, I am intending to take a net dividend of £12,960. Is it correct to say that £12,960 - £2,224 = £10,736 and this is the amount subject to higher rate personal tax? If so, do I take a straight 25% off the £10,736?
Ta, Swampy.

The net dividend of £12960 would be £14400 gross less the £2224 would leave £12176 subject to Higher Rate tax, at an effective 22.5%, the tax would be £2739.60

Alan

**Nixon Williams** · 11 December 2006, 12:35

Originally posted by Sockpuppet

I thought that £33,300 was including the £5,035?

I thought that the first 5k was tax free, the next 28k @ 24% and anything over at 40%?

No, the £33300 is added to the £5035 giving a total of £38335 before higher rate tax kicks in.

Alan

**Swamp Thing** · 11 December 2006, 13:08

Thanks to Alan of Nixon Williams - a straightforward answer

**chuddy** · 11 December 2006, 18:19

Originally posted by Nixon Williams

The net dividend of £12960 would be £14400 gross less the £2224 would leave £12176 subject to Higher Rate tax, at an effective 22.5%, the tax would be £2739.60

Alan

Alan, quick question:

gross dividend = £14400
net dividend = £12960

i.e. 10% tax was paid. Why is this the case?

Are dividends paid after corporation tax and are they subject to both corporation tax AND personal investment income tax?

If the answer to the above is no, then if corporation tax was at 19% then should we not receive a tax credit of 9% for ammounts up to lower dividends tax threshold (19%-10%=9%) and then be taxed at 13.5%(32.5%-19%=13.5%) where in upper dividends tax threshold?

Any pointers appreciated

**chuddy** · 11 December 2006, 18:26

Do we get the 10% credit because HMRC are effectively charging only 9% for coroporation tax on any dividends that are given out? (19% charged, but individuals always get 10% credit?)

**Gonzo** · 11 December 2006, 20:25

Dividends are paid from net profit - ie amounts after taxes and expenses.

Crazy as it seems, dividends are received by individuals with the 10% tax credit however this satisfies the tax liability for lower rate tax payers who do not pay any further tax on that income.

**Sockpuppet** · 11 December 2006, 20:34

Personally I seem to be doing a good job of avoiding paying any corp tax. First months figures are in. Billed £5k ... left £1k

Fecking startup costs and accounts taking my money well I'll show them....grrrrr

Higher rate personal tax on dividends