Gross, Net & tax

[zuby]

Hello Guys,

Please guide me about these 2 questions;
1) HO count Net dividends or Gross Dividends?
2) Do I need to pay tax on company profit or dividend income?
( I think 20% corporation tax) But if I am paying tax on my dividend, will I get any tax relief (10%)?

Ok I think I made this two complicated

If my profit is £20,000 and Dividend income is £15,000, So overall how much tax do I need to Pay?
(Additionally I am getting £20 K from my main Job {tax already paid})

Thanks in advance,
Zuby

[AccountantMatthew]

1) HO count Net dividends or Gross Dividends?

Gross

2) Do I need to pay tax on company profit or dividend income?

The company will pay Corporation Tax on company profits. For current rates see http://www.hmrc.gov.uk/rates/corp.htm

You as an individual are subject to Income Tax on dividends. For current rates see http://www.hmrc.gov.uk/taxon/uk.htm

[zuby]

Thanks Matthew,

So if I pay 20% tax on £20,000 profit is almost £4,000 tax and then again I need pay £1500 on £15,000 dividends income?

It means I am paying £5,500 tax on my overall income.

My questions is, I am taking £15,000 dividends from my £20,000 Profit,
So still I need to pay £5,500 or only £4,000?

I am confused now

Welcome your bright suggestions

[AccountantMatthew]

No!

Your company will pay 20% Corporation Tax if the Profits Chargeable To Corporation Tax (PCTCT) is £20k (I'm assuming that there is no other 'kind' of income here). It would amount to £4k but do remember that your accounting profits do not necessarily equal PCTCT and also it will depend on what your accounting year is in question - if your year started before April 2011 then some profits will be taxed at 21%. You as an individual pay nothing, it's the company that pays.

As for your dividend income, it depends on what your total income is in a given tax year. If your taxable income is in the basic rate then the dividend income is taxed at 10% but you get a tax credit of 10%; the net effect is that you will pay an effective rate of 0%.

If your taxable income places you in the higher rate tax band then some or all of the dividend (depending on what falls into which bracket) will be taxed at 32.5%. You will get your tax credit of 10% and you will pay an effective rate of 25%.

[zuby]

Thanks Matthew,

I found article on HM revenue, link provided by you...

Paying tax on dividend income
If you pay tax at the basic rate
You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit - as shown in the earlier tables.

[AccountantMatthew]

Spot on!