Dividend payments

[sandycastle]

Hello,

I am just starting out in business and have a question relating to salary/dividend payments. I understand the principle of this, and have decided to pay myself a (fairly) small salary and take additional funds as dividends to suplement my salary. I have a couple of questions around this though:

1) I have been told that the IR will "frown" upon seeing monthly dividend payments as they will count it as part of a salary (and hence taxable at standard rate) - is this correct?
2) If answer to above is yes, will quarterly payments be better?
3) I understand that all dividend payments come out of company profit, and are therefore liable for 10% corporation tax (apart from the first 10K profit?). Are there any tax implications for me personally - again I was told 'no' by one person (ie 5k profit means I can take 4.5K after corp. tax), but 'yes' by another (so 4.5k minus 22% personal tax).

Many thanks,
Sandy

[hashman]

1. As long as the paper work has been done properly HMRC can frown all they like but there is nothing they can do about the situation.
2.
3. Dividends are a distribution of company profits and are not allowable for corporation tax. In the shareholder's hands they are treated as a net payment which carries a tax credit of 1/9th. In the case of a basic rate taxpayer there will be nothing further to pay (unless the grossed up dividend takes them into higher rates) but a higher rate taxpayer will have to pay an amount equal to 25% of the net dividens received with their self assessment.
From 1 April 2006 the small companies rate of CT is 19% on profits up to £300,000 (assuming there are no associated companies).