Help me work out dividend tax credit?

Discussion in 'Accounts & Finance' started by clivebond, Aug 21, 2007.

  1. clivebond

    clivebond UKBF Newcomer Free Member

    Posts: 15 Likes: 0
    Still Dont understand Dividend Tax credit system??
    Hi can you help clarify how I would work out my income and tax liability as a director or a ltd co,

    If I were to invoice pathway for 5k a month and trade through my own LTD company –

    my turnover for year is 60k
    expenses for year are £4800
    I pay myself a salary of 5225k
    So net profit before tax is £49,975
    Ctax – 20% = £9995

    Dividend left for me is £39,980

    £39,980 how would I work out the tax I need to pay on the dividend as there are brackets

    10% below £34,600 and 32.5% above £34,600..

    Can you help me understand the tax credit system -

    how much dividend tax do I pay ?
    How did you work it out?
    Is my £5225 salary taken into consideration and added to dividend to work out final tax bill?
    Posted: Aug 21, 2007 By: clivebond Member since: Dec 12, 2006
    #1
  2. elainec100@cheapaccounting

    elainec100@cheapaccounting UKBF Newcomer Full Member

    Posts: 13,271 Likes: 2,878
    Clive

    IMO this is something your accountant should provide for you along with general advice on your tax planning for your business and your potential exit strategy if you were to finish contracting (assuming you are an IT contractor as you mention Pathway).
    Posted: Aug 21, 2007 By: elainec100@cheapaccounting Member since: Nov 4, 2005
    #2
  3. frauke

    frauke UKBF Newcomer Free Member

    Posts: 398 Likes: 52
    I agree with you Elaine....

    If only Tax & Ltd Company admin was that simple.......
    Posted: Aug 21, 2007 By: frauke Member since: Jul 13, 2007
    #3
  4. DFL

    DFL UKBF Newcomer Free Member

    Posts: 1,026 Likes: 322
    The dividend payment of £39,980 is grossed up by 100/90 to show a gross amount of £44,422.22 - you then receive a notional credit of £4,442.22 resulting in the net amount you gave. So no further tax due on the basic rate income as it is charged on dividends at 10% but you have your 10% notional tax paid already.

    So your tax bill we be calculated as follows:

    First £5,220 0%
    Posted: Aug 21, 2007 By: DFL Member since: Aug 21, 2007
    #4
  5. DFL

    DFL UKBF Newcomer Free Member

    Posts: 1,026 Likes: 322
    The dividend payment of £39,980 is grossed up by 100/90 to show a gross amount of £44,422.22 - you then receive a notional credit of £4,442.22 resulting in the net amount you gave. So no further tax due on the basic rate income as it is charged on dividends at 10% but you have your 10% notional tax paid already. Its only the higher rate amount that is subject to additonal tax.

    So your tax bill we be calculated as follows:

    First £5,220 0%
    Next £34,600 10% less 10% credit = £0
    Balance of £9822.22 taxed at 32.50% = £ 3,192.22 - less 10% credit £982.22

    Tax due £ 2,210.00


    Regards, Jason
    Posted: Aug 21, 2007 By: DFL Member since: Aug 21, 2007
    #5
  6. elainec100@cheapaccounting

    elainec100@cheapaccounting UKBF Newcomer Full Member

    Posts: 13,271 Likes: 2,878
    on line div calculator here:

    http://www.contractorcalculator.co.uk/Dividend_Tax_Calculator.aspx

    entering your figures gives you this answer:

    http://www.contractorcalculator.co....=Parasol&wl=InsideLondon&uds=Basic&Host=LOCAL

    I'll repeat it here just in case you can't get the link:

    Income Information
    • Salary = £5,225
    • Net dividend = £39,980
    • Other income = £0
    • Tax code = 522L
    • Tax year = Fiscal Year 2007/2008.
    Dividend Information
    • The gross dividend is £44,422, making your total gross income £49,647
    • You are a higher rate tax payer (limit is £34,600). Extra tax is payable on dividends
    • £9,818 of your gross dividend income is subject to further tax at 22.5%
    • The extra tax to pay is £2,209 (5.5% of net dividend).
    Notes:

    Gross dividend = (10/9)*Net dividend.
    Taxable gross income = Gross salary + other income + grossed up dividend - tax free allowance.
    Dividend tax is 32.5%, with the first 10% already paid via a tax credit.
    Posted: Aug 21, 2007 By: elainec100@cheapaccounting Member since: Nov 4, 2005
    #6