Gross Dividend Greater Than Net Profit Allowed ?

[Craig at Nixon Williams]

As others have said, if the net dividend is covered by the Profit after Tax then it is not illegal.

Whats happens to the 10% ? Does this need paying to HMRC, hence I am being double taxed ?

The 10% tax credit is not actually paid to HMRC by either the payer or the recipient of the dividend, think of it as a figure that is used only to calculate tax liabilities. Say you receive a dividend for £90, HMRC view that as you having been paid a dividend of £100 that has had £10 of tax deducted (even though there has not actually been any transaction for £10).

As a basic rate taxpayer if you have a dividend of £100 (including the 10% tax credit) then you will be charged 10% tax on the value (so £10) but will then be given credit for the tax that you are already deemed to have paid (again £10) so will have no additional tax to pay. Therefore as a basic rate taxpayer, despite the rate of 10% being published, the effective rate on the net dividend is 0%, for a higher rate taxpayer the published rate is 32.5% but the effective rate is 25% of the net.

You aren't being double taxed - for example lets say you have a net profit of £100 (before tax), pay CT of £20 and distribute the rest as dividends. As a basic rate taxpayer you will end up with £80 in your pocket after all taxes (a tax rate of 20%). As a higher rate taxpayer you will then pay (an effective rate of 25%) on the £80 distributed, so a further £20 in personal tax (plus the original £20 CT on the net profit) so the total tax paid on net profit in this scenario is £40 (so 40%).

Hope this helps!
Craig

[scrollock]

The unknown highlighted bit was why I thought it might have been inefficient. I assume (and hope) the other person is your spouse?

Yes

[scrollock]

Hope this helps!
Craig

Thanks, so in a nutshell as far as Myco is concerned it just a pays a dividend (gross or net is immaterial).

However as far as my personal finances are concerned, it has been paid net, I need to gross it up with the tax credit and add to other income to see where I sit tax allowances wise.

If I go into higher rates, then further tax is payable less the 10% credit.

[Craig at Nixon Williams]

Thanks, so in a nutshell as far as Myco is concerned it just a pays a dividend (gross or net is immaterial).

However as far as my personal finances are concerned, it has been paid net, I need to gross it up with the tax credit and add to other income to see where I sit tax allowances wise.

If I go into higher rates, then further tax is payable less the 10% credit.

Yes, that sounds correct!

Craig

[ASB]

Thanks, so in a nutshell as far as Myco is concerned it just a pays a dividend (gross or net is immaterial).

However as far as my personal finances are concerned, it has been paid net, I need to gross it up with the tax credit and add to other income to see where I sit tax allowances wise.

If I go into higher rates, then further tax is payable less the 10% credit.

Assuming you go into the higher rate, but not the additional rate (i.e. 40%) then there is 25% of the net dividend in that band to pay.

[Craig at Nixon Williams]

To illustrate the interaction between the 25% and the 10% tax credit etc.

Net dividend: £90.00
Tax credit: £10.00
Gross Dividend: £100.00

Tax due at 32.5% of the gross is £32.50, deduct the £10 deemed to have been paid so the additional tax due is £22.50 – which is 25% of the £90 net dividend!

Craig

[stek]

To illustrate the interaction between the 25% and the 10% tax credit etc.

Net dividend: £90.00
Tax credit: £10.00
Gross Dividend: £100.00

Tax due at 32.5% of the gross is £32.50, deduct the £10 deemed to have been paid so the additional tax due is £22.50 – which is 25% of the £90 net dividend!

Craig

Accountants make adding-up and taking-away turn into what seems like higher-maths!

[Craig at Nixon Williams]

HMRC make adding-up and taking-away turn into what seems like higher-maths!

FTFY

[scrollock]

Ok, I have everything sorted. My accountant is away, but one of the partners has looked at the figures and OK'ed them. Paperwork drawn up and ratified.

I now want to make payment, for the payment to myself am I ok to transfer from my business account to my personal account, or do I have to make an "official" transfer, i.e. CHAPS or something ?

[Craig at Nixon Williams]

Ok, I have everything sorted. My accountant is away, but one of the partners has looked at the figures and OK'ed them. Paperwork drawn up and ratified.

I now want to make payment, for the payment to myself am I ok to transfer from my business account to my personal account, or do I have to make an "official" transfer, i.e. CHAPS or something ?

If you have the paperwork drawn up then you can just make the payment from the business bank over to your personal account.

Craig