Tax on dividends

[DeveloperBloke]

Hi there

I will soon be getting paid by dividend and i was wondering what tax implications will be for me! I will pay myself 6k paye then about 40k dividend each year in lieu of salary

1. someone said that i need to be careful how i declare it to the tax man

2. am i liable for tax on this?

3. what is the best way to do this with the smallest tax liability to myself (not my business)

many thanks

jamie

 

[Ray Coman]

Dividends are extraction on company profits after tax and therefore have already been subject to corporation tax. Dividends therefore come with a non-repayable 10% tax credit. To the extent that a dividends falls into you higher rate of income tax it will be subject to tax at 32.5%. Dividends are a form of investment income and not liable to national insurance.

I hope this helps. Please let me know if you have any queries.

 

[Jaykay]

Good evening.

Just a couple of points to add to the previous post:

Presumably the dividend of 40K is what you are going to take. This will be net of a 10% dividend tax so the gross figure will be 44,444. Added to your 6,000 salary, your income for the year will be 50,444 gross (plus any other bits of interest etc you may have). The 40% tax band starts at about 42,000 so you will have additional tax to pay on about 8,000 at 32.5%

You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance. (Ouch)

You cannot take more in dividend than the company makes in taxed profit, so be careful!

 

[David Griffiths]

You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance. (Ouch)

Sorry but that's just wrong, particularly the myth that if you take a dividend more than 4 times a year it will be "classed as income"

 

[Vikas]

You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance. (Ouch)

Many of the clients I have worked with take drawings on a monthly basis, account for this through their directors current account and clear this periodically by declaring dividends.

But thats besides the point because I am very sure there is nothing is tax statute that prevents a company from paying a dividend as many times as they wish.

You cannot take more in dividend than the company makes in taxed profit, so be careful!

This is not really true as dividends above the taxed profits can be paid from any undistributed profits from prior periods.

 

[Jenni384]

A dividend can be declared every day if you so wish - as long as it is documented correctly.

A dividend is a dividend and as long as it's from taxed profit (including undistributed reserves) and it is correctly documented, there is little HMRC can do to challenge it.

 

[jamesparker]

i think you need to be You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance.

 

[Williams lester]

i think you need to be You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance.

Absolutely wrong....you can declare a dividend as often as you like subject to having distributable reserves available.

 

[Jaykay]

I am interested to see the difference of opinion here! I was taught on my AAT course that one should not take more than quarterly dividends. However, presumably that was the tutor's view as I do not recall anything in the books.

Cheers.

 

[Jenni384]

I am interested to see the difference of opinion here! I was taught on my AAT course that one should not take more than quarterly dividends. However, presumably that was the tutor's view as I do not recall anything in the books.

Must have been, I definitely don't remember being taught that.

 

[Atilla]

i think you need to be You need to be careful about how you take the dividend. A dividend is a distribution of profit, not an income. Thus you cannot take it weekly/monthly like a salary. It should be taken 2 or possibly up to 4 times per year but no more. If you take it more frequently, it will be classed as income and become subject to National Insurance.

Almost verbatim from an earlier incorrect post. Most coincidental