Total tax paid on dividends at higher rate

[centurian]

Setting aside national insurance, I was under the impression that taking the profits/dividends route roughly equates to about 40% once you get into the higher rate band - basically the same as normal income taxation.

For every £100, I thought it was 21% corporation tax, then the shareholder pays about 25% on what's left on their self assessment return

So 100 - 21% = 79

Then 79 - 25% = 59.25


However, I now see that the higher rate taxation is basically 32.5%. The shareholder pays 25%, but the company pays the rest in addition to the corporation tax already paid.


So the overall higher taxation rate is about 47%.


Is this right. My "day job" is inside IR35, so I am a higher rate taxpayer. But I have built up a bit of capital in the company through non IR35 consultancy and paid corporation tax on it. It is going to cost me another 32.5% to actually take it out in addition to the 21% already paid.

I'm going to check with my accountant, but just wondering if anyone has a quick answer on it.


Thanks

[slackbloke]

Setting aside national insurance, I was under the impression that taking the profits/dividends route roughly equates to about 40% once you get into the higher rate band - basically the same as normal income taxation.

For every £100, I thought it was 21% corporation tax, then the shareholder pays about 25% on what's left on their self assessment return

So 100 - 21% = 79

Then 79 - 25% = 59.25


However, I now see that the higher rate taxation is basically 32.5%. The shareholder pays 25%, but the company pays the rest in addition to the corporation tax already paid.


So the overall higher taxation rate is about 47%.


Is this right. My "day job" is inside IR35, so I am a higher rate taxpayer. But I have built up a bit of capital in the company through non IR35 consultancy and paid corporation tax on it. It is going to cost me another 32.5% to actually take it out in addition to the 21% already paid.

I'm going to check with my accountant, but just wondering if anyone has a quick answer on it.


Thanks

Where have you got 25% from?
For tax on dividends you pay either 10% or 32.5% depending on whether you are above or below the higher rate threshold, less 10% tax credit.
So, if you are below the threshold the tax rate is 0% (10 - 10).
Above the threshold (as you are), you pay 22.5%.

[blacjac]

And it's not "in addition to" corp tax.

It's a 10% tax credit that you get because corp tax has been paid.

[Waldorf]

The extra tax on divs is 25% of the net dividend or 22.5% of the gross, the tax is the same.

[centurian]

And it's not "in addition to" corp tax.

It's a 10% tax credit that you get because corp tax has been paid.

The extra tax on divs is 25% of the net dividend or 22.5% of the gross, the tax is the same.

Yep, I'm starting to get my head around it now.

From what I understand, the dividend gets "grossed up", but only 90% of it gets paid and then 10% credit gets applied. This basically amounts to 25% of what's left after 21% has been paid.

But the key point is that total tax paid (by company and shareholder) on the higher rate is about 40% - right

Trust HMRC to make what should be a simple calculation (i.e. the company's already paid 21% - you cough up the rest) into something so complicated.

Why not simply make it 25% of the paid dividend in the first place. Wonder if this is something to do with different rates of corporation tax for different sized companies.


Thanks for the info chaps...