Salary/Dividends Tax threshold

[aj1977]

Its easier to explain if I plug in some example numbers...

Say you have withdrawn £10k in dividends this tax year. That means there has also been £1,111.11 tax credit applied.

So out of the £39,825 before the higher rate tax threshold, you have £10500 in salary, £11,111 so far in dividends+tax credit so there is £18214 left for dividends+tax credit. I.e. you can withdraw £18214 x 90% = £16,393

<Neil Buchanan Mode>

Try it yourself

</Neil Buchanan Mode>

Cheers Robin.Thats much easier.However!!

"Say you have withdrawn £10k in dividends this tax year. That means there has also been £1,111.11 tax credit applied. "

I have the tax credit vouchers and MOM for all the dividends declared so far.But the actual money that was transferred from the company to personal bank account was (as in your example) 10K and not £11,111.

If that was the case then am I not left with £19325(39825-10500+10000) that could be declared as dividends.

Sorry If I still got it all wrong

[ASB]

The tax credit is notional. In your example 10k changes hands. From a point of view of your tax return the sum entered is 10k, the associated tax credit goes somewhere else on the return and is considered in the calculation. The tax credit satisfies the basic rate liability but not the higher rate liability.

I am not sure why this causes so much confusion, but it does.

I don't know whether this makes if clearer or more obtuse either

[aj1977]

The tax credit is notional. In your example 10k changes hands. From a point of view of your tax return the sum entered is 10k, the associated tax credit goes somewhere else on the return and is considered in the calculation. The tax credit satisfies the basic rate liability but not the higher rate liability.

I am not sure why this causes so much confusion, but it does.

I don't know whether this makes if clearer or more obtuse either

No Not really

[MrRobin]

I have the tax credit vouchers and MOM for all the dividends declared so far.But the actual money that was transferred from the company to personal bank account was (as in your example) 10K and not £11,111.

That's the right way to do it. The other £1,111 is just a 'voucher' and no money is actually moved about - basically what it is saying is that the tax that is due has already been paid out from your Corporation Taxes. Confusing I know but that's the ridiculous tax system for ya!

[aj1977]

That's the right way to do it. The other £1,111 is just a 'voucher' and no money is actually moved about - basically what it is saying is that the tax that is due has already been paid out from your Corporation Taxes. Confusing I know but that's the ridiculous tax system for ya!

Ok does that mean that my earlier statement "If that was the case then am I not left with £19325(39825-10500+10000) that could be declared as dividends." is correct??

[ASB]

No Not really

I thought it probably wouldn't

For the purpose of your personal income tax the taxable payment is your net dividend plus the tax credit. [ie. 10/9ths]. The taxation rates are such that if you are a basic rate taxpayer there is no additional tax to pay, however if you are a higher rate taxpayer there is an additional liability of 25% of the next dividend received (in the higher rate band of course).

What in effect happens is that the bands are based on gross income (same as PAYE income of course) whilst you only actually receive the net.

This is probably also as clear as a very opaque thing.

There is probably a tax calculator out there which deals with dividend income - though I haven't looked. Plugging your numbers in by example might bring more clarity.

[Lewis]

If you receive only dividends (under higher rate threshold) and no salary, what happens then?

e.g. If you recieve only 10K dividends one year. Do you get a refund of the £1K tax credit?

[ASB]

Ok does that mean that my earlier statement "If that was the case then am I not left with £19325(39825-10500+10000) that could be declared as dividends." is correct??

No. The 10500 is gross income (i.e. your salary). The 10000 is net income (i.e. dividends). To make this into gross income you need multiply it by 10/9 (i.e. include the tax credit to gross it up).

[ASB]

If you receive only dividends (under higher rate threshold) and no salary, what happens then?

e.g. If you recieve only 10K dividends one year. Do you get a refund of the £1K tax credit?

No. It's non reclaimable.

[MrRobin]

Ok does that mean that my earlier statement "If that was the case then am I not left with £19325(39825-10500+10000) that could be declared as dividends." is correct??

No. It's 90% of £18,213(39825 - 10500+10000+1111) = £16,392.