When the company makes a profit, the benefits paid to all shareholders are classified as dividends. Because of the potential tax benefits, small business owners often pay a dividend in both the salary and not just one or the other.Like any other type of income, someone with dividends from UK corporation tax will pay personally. This article provides an overview of the taxation of shareholders of dividends in the UK. Whether you own a business and run the company through a virtual office or work from home as a shareholder in a Limited Company you will probably take a dividend from the profits. We look to explain how a dividend is taxed;
How does the dividend tax credit?
To escape the double taxation of dividends paid by the company will pay tax or income tax, which is known as a tax credit for dividends to the shareholder shall be provided in order to avoid double taxation. This tax credit is offset by the income tax due on income from dividends.For now, the tax credit is 10%. The tax credit is calculated by dividing the amount of net dividend of 9 net dividend is then added to the deduction. This then gives the "gross dividend", which is the sum of income tax. This is the starting point that determines whether further tax is due.When a shareholder receives the dividend plus the tax that you pay, depends on the total income. This includes income from salaries and pensions, bank account and other savings or dividends received.Taxation of dividends are at the same prices, if you bring your own small business or PLC, which is listed on the stock exchange. The same is true for dividends received from trusts or open-ended investment companies. However, combining the interests of the corporation is subject to different rules, unlike dividends.
Here are three tax rates applicable to dividends:
- The basic rate consists of a taxable income of up to £ 31,865 will be taxed at 10%.
- The higher rate band, comprising of taxable income between £ 31,865 and £ 150,000 and is taxed at 32.5%. This part is included in the dividend tax credit.
- A decrease in revenues from dividends in the band of another kind, consisting of taxable income of more than £ 150,000 is taxed at 37.5%.
The tax of 10% of the gross dividend received is completely covered by the tax credit a 10% dividend. Dividend income is taxed after the adoption of any savings and includes the use of or premiums.
