Quick dividend question

[Gros]

Hi all,

just trying to get my head fully around the dividend / tax credit situation.

Let's say I paid a dividend to myself of £9000. Should the figure on the dividend voucher and meeting minutes say £9000, with the value of the tax credit alongside it...

Or, should the value on the voucher be £9000 LESS the tax credit, with the value of the credit alongside it?



Yours, confused of London.

[chris79]

It should look like this:-


Dividend £9000, Tax credit £1000



The calculation is 9000 / 9. You don't take £1000 off the £9000 etc. The dividend should also be the net amount after you have already paid 21% corporation tax on it, so if you were paying £9000 out your account and had not already paid tax it would be £9000 * 0.79 = £7110 dividend, £790 tax credit.

If anything above is wrong please don't blame me, I'm not an accountant.

[Gros]

Thanks Chris.

Not sure I totally understand the last sentence. In my case, the dividends were paid out last year, but the tax on them will be paid this september. I'm just making sure the paperwork is right in terms of tax vouchers.

I presume your first sentence (that the amount I paid myself is the gross amount on the dividend voucher) is correct in this case.

[Gonzo]

It should look like this:-


Dividend £9000, Tax credit £1000



The calculation is 9000 / 9. You don't take £1000 off the £9000 etc. The dividend should also be the net amount after you have already paid 21% corporation tax on it, so if you were paying £9000 out your account and had not already paid tax it would be £9000 * 0.79 = £7110 dividend, £790 tax credit.

If anything above is wrong please don't blame me, I'm not an accountant.

That's basically the case.

1. Take the gross profit
2. Work out the corporation tax (21% ish, there are capital depreciation items that might have a small effect, that's what the accountant is for)
3. Pay yourself a net dividend of the net amount. At the same time, give yourself a tax credit of 1/9 of the net amount that you have paid yourself.

The 21% corporation tax covers the 10% tax credit, which satisfies the tax liability for a basic rate (20%) tax payer. Confused? It didn't make a whole lot of sense when this set up was introduced, and now with the abolition of the 10% tax rate, it makes even less sense.

[Gros]

Right, I think I'm clear about this now!


Soooo, to summarise:


Let's say I decide that I am in a healthy position to pay a dividend of £5000.

Don't worry about whether or not I've worked out my gross/net profits, or whether there's enough in the account to cover corp tax, or whether I'm going to breach the higher tax threshold. The actual amount that leaves the business bank account is £5000.

My dividend voucher should read (ignoring the actual wording):

Dividend: £5000 Tax voucher: £555.56


Am I there?

[chris79]

Yes, it would be £5000 / 9 = £555.56 (rounded up).

You should also have your board meeting minutes documenting the dividend, and each shareholder have a voucher showing the price per share paid etc... so if you are the single shareholder with 1 share, it would be £5000 per 1 share.

[Gros]

Cool.

Just to make things awkward, when I set up the company I issued 100 shares all to myself. Don't know why, just didn't know any better at the time.

So in this case, I would have to pay out £50 per share, I suppose.

[ASB]

Cool.

Just to make things awkward, when I set up the company I issued 100 shares all to myself. Don't know why, just didn't know any better at the time.

So in this case, I would have to pay out £50 per share, I suppose.

That would be easiest.

[chris79]

Cool.

Just to make things awkward, when I set up the company I issued 100 shares all to myself. Don't know why, just didn't know any better at the time.

So in this case, I would have to pay out £50 per share, I suppose.

Yes, I made the mistake of issuing 500 shares to myself and 500 to my partner, so I have to pay my dividends to the tune of 1000 shares, it's no big deal though, but would have been easier to just give us 1 share each. All part of learning the ropes I guess, we all start somewhere.