There are effectively three ways to extract your income from your company. One of the methods described is a dividend payment.
A dividend is simply a distribution of your company’s profits after Corporation Tax has been allowed for and can be paid at any time providing sufficient funds are available in the company bank account.
These dividends are usually payable to you and your spouse as shareholders in your company.
We recommend that you declare dividends on a quarterly basis.
Declaring a Dividend – Impact on your Company
Your company does not have to account for Advance Corporation Tax on any dividend or other qualifying distribution.
Where your company pays you it will carry a 10% tax credit. For most shareholders this will be a non repayable tax credit.
Your dividend counterfoil will show the following 3 headings, and if say a dividend of £90 was paid, the respective figures under each heading would be
|Dividend||Tax Credit (1/9 x 90)||Total|
Your company no longer has any requirement to return the dividend or to account for the tax credit on a CT61 return. The new style CT61 Return only applies to income tax on interest, other annual payments and manufactured payments.
Your company’s dividend will be included in the company accounts. Any Corporation Tax due on the overall profits should be paid on the respective due date, which is normally 9 months and one day after the end of the Accounting Period.
Declaring a Dividend – Impact on individuals
When you declare a dividend the tax credit will be 10% of the sum of the dividend plus the tax credit.
For example, the tax credit on a dividend of £90 will be £10. That is 10% of (£90 plus 1/9 = £100). You will not normally be entitled to claim a repayment of the 10% tax credit attached to any dividend paid.
If your total taxable income is within the starting or basic rate bands you will only be liable to tax at 10% on your dividend income. This means that the 10% tax credit will continue to satisfy your tax liability on those dividends.
Individual shareholders who are higher rate taxpayers can set the 10% tax credit against their personal liability on the dividend, which will be charged at a new rate of 32.5%.
For example, if a higher rate taxpayer receives dividends of £90 the tax due will be £32.50. That is the total of the dividend and the tax credit (£100) charged at the new rate of 32.5%. The 10% tax credit of £10 can then be set against the tax due of £32.50 leaving the higher rate tax payer with £22.50 to pay.
The Next Step
Now that you know the process and implications of declaring a dividend and providing the funds are available, you are ready to proceed with a dividend payment. The Board Meeting Minute should be kept as evidence of your dividend declaration and the Dividend Tax Voucher should be kept as evidence to support your tax credit for your Self Assessment Tax Return.
A Word of Caution
The dividend payments received must be included in any Self Assessment Tax Return completed by each of the shareholders as with all other sources of personal income. Using the examples given above, the Self Assessment Tax Return should include Gross Dividend Income of £100.00 and a Tax Credit of £10.00.