Call our team +44 (0) 207 566 3939


Higher rate taxation and your dividend

Higher rate taxation and your dividend

by | Oct 27, 2014 | Blog, Company Formation Services, Tax, Tips & Advice, Uncategorized | 0 comments

The impact of a higher rate of taxation of dividend

When you start a business it is important to think about the type of company you will be and what consequences this will subsequently have on your taxation and personal liabilities. Your Virtual Office London provide free expert advice on this matter to all clients, more often than not it makes a lot of sense to become a Limited company and trade under this legal status. If you do own a Limited company you would often take your profit as a dividend. A dividend is taken by a shareholder, only a shareholder in the company can take a dividend, staff or employees are unable to do this if they do not own a share. A shareholder can take a salary and a dividend, depending your personal circumstance we would advise you to talk to us about your situation and how a dividend can help reduce your tax overheads.

Dividends are subject to the highest tax bracket in which income is between £31,865 and £150,000. This is after taking into account the personal allowance that is taxed at 32.5%.

Part of that obligation is represented by the dividend tax credit of 10%, but an additional 22.5% tax on the gross dividend is paid by the shareholder. In some cases, the dividend does not belong to any of the basic rate or higher rate tax bands, but rather include both. In this case, dividends will be taxed at the basic rate, and the remainder to a higher rate.

Dividends, which are located in the additional rate tax band, will have a taxable income of over £150,000 and are taxed at 37.5%. Some of them have a tax credit of 10% of the dividend. This means that there is no tax of more than 27.5% of the gross dividend payable. This is equal to 30.56% of net dividend received.

The shareholder must always be prepared to pay additional tax. This happens when the dividend income falls in the highest rate, or as additional rate tax bands. This means that the dividend will have to be set aside to meet tax obligations.

This additional tax paid to HMRC, has a deadline of 31 January following the tax year in which the dividends are received.

Persons are subject to its own declared dividends received under the tax refund.
Due to the effect of a dividend on the overall fiscal position of the individual, tax advice from an accountant should be sought prior to the payment of dividends to your firm. This can also determine the optimal combination of wages and dividends. Shareholders may elect to waive dividends, but these exceptions should be made before the announcement of the dividend.


Blog Categories

Contact Details

Tel: 0207 566 3939

Fax: 0207 566 39352



Our Location

Capital Office
Kemp House
152-160 City Road
London, EC1V 2NX

Opening Hours

Monday - Friday: 9.00AM – 5.00PM
Saturday: Closed
Sunday: Closed

All You Need to Know About Limited Company Shares

All You Need to Know About Limited Company Shares If you’re set to launch a company limited by shares, it’s important for you to understand all there is to know about these limited company shares and what they mean for your business. Before you begin working via your...

Appointing and Removing Company Directors 101

Appointing and Removing Company Directors 101 There may be a number of reasons you’ll want to remove your existing company director and/or appoint a new individual to the role. Whether you’re planning a major reshuffle at the top for the sake of changing course of...

Where Do I Send My Stock Transfer Form?

Where Do I Send My Stock Transfer Form? Congratulations! You’re either a newly formed business, or you’ve been running your brand from a reputable business address for some time. But with the plaudits comes the pressure; not least the overwhelming number of...

7 Important Roles of a Company Director

7 Important Roles of a Company Director You may be the proud owner of a new business, functioning from a credible business address, and envisioning a bright future ahead. But if you’re unsure about exactly what a company director’s role entails, then you may find...

How to Transfer Company Shares

How to Transfer Company Shares If you’re the proud owner of a business, functioning from a reputable business address, you may soon find yourself making important decisions with shareholders regarding the transfer of company shares.  Shares Defined Before we...

Memorandum and Articles of Association 101

Once you’ve obtained a registered office address, your business will be running in earnest along with the presence of a pile-up of paperwork. You can avoid becoming overwhelmed by the inevitable if you familiarise yourself with vital business terms and documents;...

In a hurry and just want some advice?