higher-rate-taxation-and-your-dividend | Capital Office

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.