Giant & Dividend Tax

[tim123]

Two reasons for me looking into it:

1) Trying to decide what the most tax efficient solution is for me for the reminder of this financial year. Waiting until the tax man sends an invoice might be a bad idea. I like to know upfront and base my decisions on that knowledge.

Taking money out of the company as a dividend is always more advantageous than taking it out any other way.

Your only other options are leaving it in for distribution later, or paying it into a pension. The former requires you to see further ahead than the end of this year so you have to 'take a chance' anyway, and the latter comes with the big stick of never seeing the capital again.

2) I like to understand the numbers I am seeing and it worries me if the company that i am about to use as an accountancy solution gets some "basic" calculations wrong - if they do.. ;-)

The general view is that Giant are far from the best choice of accountant that one could make. Whether they've got this right or wrong wont change that.

tim

[Nixon Williams]

For small companies the CT rate is 19% and this is applied to profits after expenses etc. There can be some adjustments for depreciation etc.

Dividends can then be paid from this after tax sum.

If you are not a higher rate tax payer then there is no further personal tax to pay.

If you are a higher rate taxpayer then the amount of dividends that exceed the higher band will be subject to extra tax. This is 22.5% (32.5% - 10% tax credit) of the gross dividend. (25% of the net will give the same tax bill).

So as an example if the net dividend is £900, there is a 10% tax credit (of the gross) so the gross is £1000.

If you do not pay HR tax then you keep the £900 - mo more tax to pay.

If you are a higher rate tax payer then the extra tax is 22.5% of the £1000 - ie £225 (25% of £900 also gives you £225)

I hope this explains.

Alan

[JLeduc]

... Is it really important that you know the exact amount now? Just leave some money in the bank to pay the bill when it comes.

tim

Two reasons for me looking into it:

1) Trying to decide what the most tax efficient solution is for me for the reminder of this financial year. Waiting until the tax man sends an invoice might be a bad idea. I like to know upfront and base my decisions on that knowledge.

2) I like to understand the numbers I am seeing and it worries me if the company that i am about to use as an accountancy solution gets some "basic" calculations wrong - if they do.. ;-)

[tim123]

Don't know about the calculations but Giant's terminology is wrong. The extra tax isn't CT, as CT is paid by companies. There is generally no way that a company can know which of the recipients of its dividends are due to pay extra tax, so the company can't pay it.

This is all sorted out by your tax office when *they* calculate your assessment for the year. Is it really important that you know the exact amount now? Just leave some money in the bank to pay the bill when it comes.

tim

[JLeduc]

I have received a the following explanation from Giant with regards to their calculation of self assessment dividend tax amounts which they use in their salary illustration for a managed ltd co.

(I did not agree with the calculated values and asked how they calculated them)

Quote Giant:
"Giant deduct 19% (basic/small companies rate) corporation tax from your dividend payments at source".

and

"Giant deduct 19% (basic/small companies rate) corporation tax at source. However, as a high rate tax payer you are required to pay 32.5% corporation tax on those dividends earned over the high rate tax threshold. Therefore, you will be required to pay an additional 13.5% corporation tax at self assessment on those dividends".

This suggests they did 32.5-19 = 13.5%

From my search in this forum so far I thought I understood that CT of 19% is deducted off company profit (income - expenses).
Dividends are paid off post-CT profits. Shareholders receiving dividends receive a 10% tax credit with the dividends and with 10% dividend tax for low tax band tax payers they have effectively no tax to pay on the received dividends.

If however the dividends take the recipient into higher tax band then on the difference between high tax band threshold and total gross income, dividend tax of 32.5% should be paid. Taking into accound the 10% tax credit this effectively reduces to 22.5% dividend tax off the GROSS dividend or equivalently 25% off the NET dividends, i.e. the amount that got paid out.

I find it had to believe that Giant would give wrong advidce on this matter so where did I get things wrong?