Limited Company Series – Dividends

A dividend is a payment of post tax profit, payable to the shareholders as owners of the limited company and declared and paid net of a notional tax credit of 10%. HMRC treat the tax credit as a deemed payment of tax. It is important to note that a dividend is never repaid to the company owner by way of a refund.

Tax on dividends - consider the following examples:

Basic rate taxpayer (2013/2014- Income up to £32,010)

Dividend Net -£1000

Tax credit- £111

Dividend Gross- £1111 (£1000 x 10/9 = £1111)

Dividend ordinary rate 10% = £111

Tax due NIL

Higher rate taxpayer (2013/2014- Income up to £150,000)

Dividend Net- £1000

Tax credit- £111

Dividend Gross- £1111 (£1000 x 10/9 = £1111)

Dividend higher rate 32.5% = £362 (£362 – £111 = £250

Tax due- £250

For income exceeding £150,000 the dividend rate is 42.5%

Key points

1. The Dividends must be paid out of available profits, or this will incur additional tax charges.
2. The Dividends must be allowed in accordance with the companies articles of association.
3. There must be supporting documentation relating to dividends paid in the form of dividend vouchers, board meeting minutes etc.

Please contact us and we shall arrange to prepare the necessary paperwork for you.