Paying dividends out of my limited company

[chris79]

If you don't know the answer to the title please don't read this or post "get an accountant". The reason I'm asking this is to double check my understanding, I have an accountant already but I'm not going to bug him at 21:50pm on a Friday night.


I have a limited company with shares split between myself and my partner (500/500) valued at £1 each.

I have £1000 in the company bank which I have decided after paying out all salaries etc. that this is actually real profit I have made and wish to reward the shareholders.

1) Do I pay 20% of this into my business savings account (£200) as corporation tax, which I keep for when I must do my corp. tax return later in the year.

2) write the board minutes etc, and issue 2 dividend vouchers with the following details:-

Interim Dividend of £0.80 paid per £1 share for the year ended 25 May 2007 to shareholders registered on 25 May 2007

...........................................
J Bloggs - Director

Number of Shares - 500
Dividend Payment - £400.00
Tax Credit - £40.00

[Gonzo]

If you don't know the answer to the title please don't read this or post "get an accountant". The reason I'm asking this is to double check my understanding, I have an accountant already but I'm not going to bug him at 21:50pm on a Friday night.


I have a limited company with shares split between myself and my partner (500/500) valued at £1 each.

I have £1000 in the company bank which I have decided after paying out all salaries etc. that this is actually real profit I have made and wish to reward the shareholders.

1) Do I pay 20% of this into my business savings account (£200) as corporation tax, which I keep for when I must do my corp. tax return later in the year.

2) write the board minutes etc, and issue 2 dividend vouchers with the following details:-

Interim Dividend of £0.80 paid per £1 share for the year ended 25 May 2007 to shareholders registered on 25 May 2007

...........................................
J Bloggs - Director

Number of Shares - 500
Dividend Payment - £400.00
Tax Credit - £40.00

Give me strength

Alright, you are mostly right except that the tax credit is ten percent of the gross dividend, so in your case:

Number of Shares - 500
Dividend Payment - £400.00
Tax Credit - £44.44
Dividend - £444.44

[chris79]

Give me strength

Alright, you are mostly right except that the tax credit is ten percent of the gross dividend, so in your case:

Number of Shares - 500
Dividend Payment - £400.00
Tax Credit - £44.44
Dividend - £444.44

cheers, the only bit I don't understand here is do I pay each shareholder £444.44, or just £400 ?

[malvolio]

cheers, the only bit I don't understand here is do I pay each shareholder £444.44, or just £400 ?

Hint - what does it say just after "Dividend payment" in the worked example?

[chris79]

Hint - what does it say just after "Dividend payment" in the worked example?

ok, but what I dont understand is this:-

company has £1000

£200 paid in corp tax

£800 left... so how can I pay £444.40 to both shareholders? Do I need to work it so that the dividend is lower and with the tax credit added it makes £400?

what is the calculation to do this?

[malvolio]

CBA to do the sums, but the £44.44 is a notional amount representing that bit of the £200 CT you have paid covering this dividend payment. The payout is £444.44, you've paid £400 to the shareholder and you''ve already paid £44.44 CT on it.

[chris79]

CBA to do the sums, but the £44.44 is a notional amount representing that bit of the £200 CT you have paid covering this dividend payment. The payout is £444.44, you've paid £400 to the shareholder and you''ve already paid £44.44 CT on it.

ok, after a bit reading around I think it's as follows, can anyone confirm?

company profit = £400.00
corporation tax = £80.00
net dividend = £320.00

dividend payable = £320.00
tax credit voucher = 320 / 9 = £35.55

the amount actually paid to the persons bank would then be £320 .. the tax credit voucher is just for reference, it is NOT £320+£35.55 paid.

correct?

[XLMonkey]

ok, after a bit reading around I think it's as follows, can anyone confirm?

company profit = £400.00
corporation tax = £80.00
net dividend = £320.00

dividend payable = £320.00
tax credit voucher = 320 / 9 = £35.55

the amount actually paid to the persons bank would then be £320 .. the tax credit voucher is just for reference, it is NOT £320+£35.55 paid.

correct?

si, baronay. The tax credit voucher is for your personal tax return. When you fill it in, you will find that you have to
- declare that you received 355.55 in dividend income
- declare that 35.55 of tax was already paid on it
- show the dividend voucher, to prove it
- then, if you're a higher rate tax payer, you may have to pay a bit more tax on top. Or, if you're a basic rate tax payer, then you're all done with no more tax to pay.