Dividend payments

[nitram2mike@yahoo.co]

In Tax year 04/05 my salary income will be £6k and my income from renting property will be £5k, i can also receive a dividend from my ltd co. Based on this what is the maximum dividend i can receive without entering the top tax rate bracket?

Can dividend voucher paperwork be down loaded from the web?

Thank you

[Lambs]

Your Personal Allowance, Lower and Basic Rate Bands total £36,145 in 2004/05.

Net of £11,000 other income, this does of course give you £25,145, which is the GROSS dividend which you may receive before Higher Rate tax is in point.

The net equivalent, which is the amount paid by the company, is 90% thereof, i.e. £22,630.

Don't forget that pension contributions will extend your Basic Rate Band, that you might also have a little bank or building society interest, etc., to consider, and that dividend income will affect any entitlement to e.g. the new Tax Credits - certainly if you were earning £11,000 beforehand and were working a "full" working week, you should have considered claiming Tax Credit entitlements.

You must also have sufficient distributable reserves in the company to support the dividend, (broadly, retained profits to date), and note that there are new rules this year to levy an effective higher rate of Corporation Tax on dividends paid by companies where profits fall below £50,000 a year.

[nitram2mike@yahoo.co]

Thankyou Lambs, am i correct in assuming that if i receive dividend before 5th April 2005 i declare the gross dividend income on my 04/05 tax return. If i receive the dividend after 6th April 05 the declaration is on the tax return for 05/06.

So if the company pays me £25145 dividend in say Jan 05, the company will retain 10% and pay (or credit my directors loan a/c) with £22630, when and what mechanism is used by the company to pay this tax held of £2515?

The company has retained profits of £68k (but in the year to 31/3/2004 it may only £10k profit. In the year to 31/3/05 it will make more than £50k profits. With this info and the proposed Jan 05 dividend payment date, does the co get caught by the new rules as explained in your final paragraph below

Thank you

[Lambs]

In answer to your queries,

1) Broadly, yes: make sure that the corresponding paperwork, vouchers etc. are clearly dated the right side of the end of tax year, whichever you choose, as well, 'though.

2) No. The 10% tax credit is entirely notional, and has been for a few years now. The company is no longer responsible for retaining tax on dividends, they are deemed to be paid net and are artificially "grossed up," for the purposes of income tax assessable on the recipient; the tax credit is not real, and is non-refundable. In the above case, the company will pay £22,630, and that's the end of it.

3} Simply put, the rules will affect your company's latest accounting period, to 31/03/05, but the rules apply when profits are below the small companies threshold of £50,000 - from the sound of things, you won't therefore have to worry too much about the new rules for non-corporate distributions.

I should add that I hope you will take the opportunity to discuss your proposals with your tax adviser or accountant, before implementation. The above is no substitute for proper one-to-one advice.