Dividends and Tax

[CAS66]

Hi,

Can someone please advise on the following:

In one tax year, if someone is paid a salary below the 40% tax threshold and also receives dividends that takes the total earned income above that threshold - is the amount above the threshold then subject to 40% tax? Or are dividends not considered as earned income and only the applicable rate of corporation tax (19%) is payable?

Thanks,

CAS66

[Joyous]

Dividend income is added to your earned income to determine taxable profits. If this takes your total income into the 40% bracket then the top slice will be taxed at 40%. If the dividend is considered a non corporate distribution then corporation tax will also be due on the dividend.

Regards

Joy

[dcaccounting]

Joy would the dividend not be taxed at 32.5%? :)

Regards

Dean

[Joyous]

Yes it would. With any amounts below the higher rate threshold being taxed at 10%.

Well spotted Dean.

Regards

Joy

[dcaccounting]

Hi Joy/Alan

How's the P35s going? Just finished mine, roll on next year!

Regards

Dean

[Joyous]

Filed my last 2 online yesterday. Thank goodness that’s all over. Roll on self assessment.

Regards

Joy

[Alpha]

I finished the ones I do personally on Monday. The rest of the team finished theirs today.

I'm now trying to get all the P11d's out of the way and scheduling all the clients that have March/April year ends!!

[CAS66]

Thanks Joy for your prompt reply.

The posts between you and Dean have really confused me. I'd be really grateful if you could take the time to expand the detail a little. Where does the 32.5% come from?

It would clearer if you could express the percentages payable with example numbers. For example: A small business declares a profit of £100k. For that accounting year, an individual is paid £25k salary and a dividend of £15k - what tax should be paid (approximately)?

Thanks

CAS66

[Joyous]

It would clearer if you could express the percentages payable with example numbers. For example: A small business declares a profit of £100k. For that accounting year, an individual is paid £25k salary and a dividend of £15k - what tax should be paid (approximately)?

Thanks

CAS66

OK, here goes using the figures you’ve provided

Actual cash dividend received =£15000
Gross dividend for tax purposes = £16667 (ie £15k plus 1667 tax credit)
Salary income = 25000
Total income = 25000 + 16667 = 41667
Taxable income = 36772 (41667 less 4895 personal allowance)

Taxed as follows

2,090 @ 10% = 209.00
18,015 @ 22% = 3,963.30
12,295 @ 10% = 1,229.50
4,372 @ 32.5% = 1,420.90


Assuming that the tax on the £25k salary has been taken care of via PAYE the tax left to pay on the dividend is 1229.50 + 1420.90 less the 1667 tax credit = £983.40.

Off to do some work now. Have fun with that.:biggrin:

Regards

Joy



Ps - The 32.5% is the higher rate for dividends as laid down by HMRC.

[dcaccounting]

Well thought i'd finished!! Don't you just love the last minute ones!! ah well, and breathe :-D

CAS66, i think you'll see from Joys calculations why there are people that do this sort of thing everyday :D

If you dont fully understand then please ask more questions.

Regards

Dean

[CAS66]

Joy,

Wow! Thanks for the fantastic reply. (couldn't find an icon for "praying to the master"!) Off to find a calculator to work out how you did that!

Dean - as they say "horses for courses". I'll stay away from the number crunching and stick to what I know!

Thanks again.

CAS66