Dividend Tax Credits

**MrsGoof** · 24 March 2006, 11:51

I believe you give 19% of the 20k to the lovely Gordo and Blair club
Pass on the rest as a divi to yourself (formal paperwork required)
When you do your tax return then pay up any owed tax

HTH

**XLMonkey** · 24 March 2006, 12:01

Tom,

as per Mrs Goof. the Tax Credit is just a receipt that you use on your personal tax return to prove that tax was paid before you received the dividend. Without it, you would end up having to pay both corporation tax on the company's profit and income tax on the dividend.

**Technically Blonde** · 25 March 2006, 18:32

The calculations for working out the tax due on dividends paid are not that simple. From what I can remember (and that's not much) it's not a straight 19%. I think you can find examples of the calculations on the IR website, maybe Darren or one of the other accountants can help. If not you could talk to the Revenue, they will advise.

**Jefferson** · 27 March 2006, 13:58

TBH if you're operating outside IR35, I'd pay for an accountant...
At the end of the day £60 ish a month will save you a lot of grief and make sure that it's all in order.

**Hex** · 27 March 2006, 16:29

I am a contractor attempting to do accounts myself, and am outside IR35. I am confused over the dividend tax credit – can anyone help? Assuming after salary deductions, I have 20k of profit. I now need to apply corporate tax, which as far as I can see will end up being 19% as the dividend is going entirely to me. Which leaves approximately 16k to takes as a dividend.

Should I pay out the 16k to myself as a gross dividend, or do I have to pay 14.4 to me, 1.6 to the taxman, and give myself a 1.6 tax credit?

In your example above you have 20k of profit.
Deduct 19% Corporation tax (£3,800) and you have £16,200 left.
Presuming you own 100% of the shares, you can payout the entire £16,200 as net dividend.

You can produce a dividend voucher for yourself with a tax credit of 10% (of the notional gross) presumed paid. So your dividend voucher shows £16,200 net dividend and a tax credit of £1,800. (The easy way to do this is to divide the net dividend of £16,200 by 9 giving £1,800).

So to summarise, you originally had 20k on which you paid £3,800 tax.
Your company pays you the remaining £16,200 with a tax credit of £1,800. Gross dividend is £18,000, net Dividend is £16,200, Tax Credit is £1,800.

That satisfies your personal basic rate tax requirement. If you go over the 40% tax threshold then any dividend income above the threshold will be taxed through your personal tax return when you do it. This will amount to 25% of the amount above the threshold. This is 25% of the net amount (which equates to 22.5% of the gross amount).

The Tax Credit is a credit against personal tax in lieu of Corporation tax which may already have been paid by the company declaring the dividend. You do not need to send this to the taxman 'cos the company has already paid the Corporation tax. That's why it is a tax credit. It cannot, however, be reclaimed if you haven't used up your personal allowance.

I believe all of the above to be correct, but I am NOT an accountant. You may well be better off contacting an account as suggested above.

**Bradley** · 27 March 2006, 16:48

Wait

Originally posted by Tom

I am a contractor attempting to do accounts myself, and am outside IR35. I am confused over the dividend tax credit – can anyone help? Assuming after salary deductions, I have 20k of profit. I now need to apply corporate tax, which as far as I can see will end up being 19% as the dividend is going entirely to me. Which leaves approximately 16k to takes as a dividend.

Should I pay out the 16k to myself as a gross dividend, or do I have to pay 14.4 to me, 1.6 to the taxman, and give myself a 1.6 tax credit?

Or have I entirely misunderstood this and should go back to the manuals?

Tom - if you wait until after 5th April to pay the dividend then
- you don't have to worry about incurring the non-corporate distribution rate of CT (the nil rate on the 1st £10k profits is still valid until 31st March 2006 I believe)
- you'll have an extra 12 months to pay any higher-rate tax on those dividends
On £20k profit for a period ending before 31st March 2006 (no dividend declared) you will pay £2375 leaving £17,625 that you can pay as a dividend post 5th April 2006. Just write a cheque.

**Tom** · 20 April 2006, 07:56

Thanks

Thanks for all the advice everyone - all is clear now

**Mustang** · 20 April 2006, 11:23

As clear as mud.....

Thank god I have a good accountant!!

**ladymuck** · 20 April 2006, 12:17

Originally posted by Mustang

Thank god I have a good accountant!!

Ditto that!

I do most of my accounts myself but when it comes to payroll, dividends or anything tax related, I leave it to my accountant - that's what I pay him for!

Dividend Tax Credits