Has your company made enough profit and you want to pay yourself a dividend? Great! But first, make sure you understand what dividends are, what you need to do and the tax implications.
So, Keep Reading!
What is a dividend?
Is a taxable payment made to a company’s shareholders if the company has made and retained enough profits. But you must pay dividends to all shareholders depending on how much equity (shares) they have in the business.
Dividends cannot be included as a cost when you calculate Corporation Tax.
What do you need to do?
Hold a meeting with the directors to declare the dividends and take minutes of the meeting. And it doesn’t actually matter if you are the sole director, you must still hold the meeting. Once the dividends have been agreed, you must prepare dividend vouchers showing the date, the company name, shareholder name and the dividend amount. Give the vouchers to your shareholders for their records and keep copies.
Tax on dividend
The company doesn’t pay tax on dividends but if you are a shareholder receiving dividends, you might have to pay Income Tax based on the amount you receive.
According to the current legislation (after 1st Apr 2017), you don’t pay tax on the first £5,000 you receive in the tax year. And it is £5,000 in total not just from one company. So, if you receive dividends from other companies, take that into account as well.
Above the £5,000 allowance the tax you pay depends on which tax band you are in as follows:
- Basic rate- you pay 7.5% on dividends
- Higher rate – you pay 32.5% tax on dividends
- Additional rate – you pay 38.1% tax on dividends.
- If you receive less than £5,000 there’s nothing to report or pay.
- Between £5,000 and £10,000, call HMRC and ask them to change your tax code, the tax will then be deducted from your future wages. If you already fill a Self Assessment tax return, add the dividend on the return you submit.
- If you receive £10,000 or more, you must register for Self Assessment if you are not already registered and submit a Self Assessment Tax Return.
For further information and deadlines, check the government website or get in touch!
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