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Where Taxpayers and Advisers Meet

Dividend Payments - Tax Credit?

sarahjane25
Posts:6
Joined:Wed Aug 06, 2008 3:26 pm

Postby sarahjane25 » Tue Jul 12, 2005 10:30 pm

I have a limited company with exptected profits for this year of £80k. This would therfore mean a corporation tax charge of £15.2k (19%).

If I wanted to distribute the remainder of profit after tax (£64.8k) between four directors will the 10% tax credit still apply to all directors?

In addition to the corporation tax, do the company pay 10% over to the Inland Revenue and the net amount paid to the directors?

Thanks

Sarah

Simon Sweetman
Posts:1690
Joined:Wed Aug 06, 2008 3:11 pm

Postby Simon Sweetman » Tue Jul 12, 2005 11:12 pm

The tax credit is notional. The company pays nothing to the Revenue. If you distribute £64.8k the income is increased by 1/9 to £72k. That is the directors' income but is charged at the Schedule F dividend rate of 32.5% less the tax credit. This works out at a rate of 25% of the net dividend. A director who is not a higher rate taxpayer pays no tax.

sarahjane25
Posts:6
Joined:Wed Aug 06, 2008 3:26 pm

Postby sarahjane25 » Wed Jul 13, 2005 11:29 am

Sorry

This may be a silly question but I have two other directors which do not have shares in the company. Could I pay them a divdend or do they need to have shares in the company to receive dividends?

Thanks

Sarah

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Postby maths » Wed Jul 13, 2005 2:10 pm

Dividends are only payable to shareholders; no shares no dividends!!

sarahjane25
Posts:6
Joined:Wed Aug 06, 2008 3:26 pm

Postby sarahjane25 » Thu Jul 14, 2005 11:03 am

Thanks

Just one final question:-

If I wanted to pay myself a dividend would I also need to pay other shareholders a dividend?

Thanks

Sarah

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Mon Jul 18, 2005 2:03 am

Yes, all shareholders have to receive any dividend declared - unless he/she has waived that right in advance/

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Postby maths » Mon Jul 18, 2005 4:04 am

Tread carefully if you do think about the dividend waiver option referred to by King Maker.

Possible adverse inheritance tax and/or settlement income tax issues may arise.

King_Maker
Posts:6538
Joined:Wed Aug 06, 2008 3:22 pm

Postby King_Maker » Mon Jul 18, 2005 4:49 am

maths is quite correct - I included it for completeness.

IHT is not usually a problem - "normal" dividend waivers are not treated as transfer of value.


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