No dividend tax ???

[hgllgh]

Not sure what you mean here.
If you have paid yourself £25,750 in divis for a FULL financial year, then the Tax Due on that is £2575, but you also get a Tax Credit on the amount of 10% so there is no tax to pay.

Not sure what you mean here.
Only the std rate of tax on divis is assumed covered by the CT already paid. There should be more to pay if you are higher tax bracket.

I paid myself £23,179 for the 06/07 financial year. Apparently the tax credit is 1/9nth of this which gives £2575. The SA site multiplies this by 10 and classes this as my dividend income £ 25,750.00. However, the £2575 is credited straight back so as far as I'm concerned I have taken £23,179 in divs and paid no tax on it?

So, if salary + dividends are below the higher rate threshhold, dividends attract no tax?

[Nixon Williams]

Well .... as far as i can make out, I'm not paying any tax on my dividends

I hope this helps:

Dividends are paid by a company to its shareholders as a distribution or share of the profits.

Dividends are always declared and paid net of tax at a rate of 10%.

This 10% tax credit is not actually paid by the shareholder or the company – it is treated by the Inland Revenue as a deemed payment of tax.

Provided that the recipient of the dividend is not a higher rate tax payer then no further tax will be due on the dividend. The dividend received would be treated as tax paid.

Higher rate tax payers will be liable for an additional charge on any dividends that exceed the higher rate threshold.

Example
Net Dividend £800.00 90%
Tax Credit £89.00 10%
Gross Dividend £889.00 100%

Basic rate and non-taxpayers will receive £800 with tax fully paid – there is no further liability.

Higher Rate Taxpayers will be liable for additional tax as follows:
Gross Dividend £889.00
Tax @ 32.5% £289.00
Less Tax Credit £ 89.00

Net Additional Tax Due £200.00 (=25% of net dividend)
Net Dividend after tax £600.00 (=75% of net dividend)

Alan

[hgllgh]

So what i said before is right ... below the higher rate threshold, dividends attract no tax.
(didn't know that, thought it was 10% regardless).

But I assume that a Higher Rate Taxpayer is someone whose PAYE salary alone is above the Higher Rate Threshold as opposed to salary + dividends being above the threshold?

[Bluebird]

So what i said before is right ... below the higher rate threshold, dividends attract no tax.
(didn't know that, thought it was 10% regardless).

But I assume that a Higher Rate Taxpayer is someone whose PAYE salary alone is above the Higher Rate Threshold as opposed to salary + dividends being above the threshold?

No, the higher rate threashold includes all income - Salary, Dividends, Interest [ from savings & current a/cs ].

[Sockpuppet]

I think you're even more confused than hgllgh.

10% tax credit on dividends. With 10% tax that equals 0% tax. Nothing to do with CT.

I always thought that the 10% tax credit that you received was due to the company have already paid this on your behalf - through CT.

Ok, so maybe I didn't explain it will. What I was basically trying to say what that you are sort of paying tax on these....through the profit your part of the company makes.

[Bluebird]

Ok, so maybe I didn't explain it will. What I was basically trying to say what that you are sort of paying tax on these....through the profit your part of the company makes.

that makes even less sense than before ??

[hgllgh]

I can see what sockpuppet is saying. Corp tax is paid on all profits which would explain why the div tax credit exists in the first place otherwise why would the tax credit be there at all.

[Bluebird]

I can see what sockpuppet is saying. Corp tax is paid on all profits which would explain why the div tax credit exists in the first place otherwise why would the tax credit be there at all.

I think there is an historical reason why it's there [ I think at one point it wasn't there ! ]

Don't forget - not all companies pay dividends [ but they should all pay corp tax ].

[VectraMan]

I can see what sockpuppet is saying. Corp tax is paid on all profits which would explain why the div tax credit exists in the first place otherwise why would the tax credit be there at all.

It's a way of justifying it, but the two aren't connected in any legal or accounting sense (IANAL and IANAA). You can pay dividends years after the associated CT was paid.

CT was 0% for small business up until 4 or 5 years ago wasn't it? I don't know what happened to dividends back then - maybe it was 10% and the tax credit was brought in at the same time to make the increase in CT more paletteable. Sounds like a NL thing - 10% tax with a 10% credit. Why not just say it's 0%?

[ASB]

I think there is an historical reason why it's there [ I think at one point it wasn't there ! ]

Don't forget - not all companies pay dividends [ but they should all pay corp tax ].

What used to happen was that when a dividend was paid the company had to account for corporation tax on this amount (i.e. really pay it). The individual received a credit for this amount and this was reclaimed as the actual tax paid (and could also be reclaimed by non taxpayers). Any ACT paid by a company was offset against future actual calculated CT.

I expect this is a bit wrong in the detail but it was about 10 years ago the change took place.