Tax On Company Dividends

A company makes 20,000 profit in the year.

If you wish to extract this as a company dividend 3 times per year do you then have to pay income tax & national insurance on this income or is it 'tax free' as long as you are not paying a higher rate of income tax??

Thanks

The dividend will come with a "Tax Credit" of 1/9th of the net dividend. This may or may not be covered by Corporation Tax paid, but does not have to be.

If you pay tax at the standard rate there is no further tax liability. There is no NIC liability on dividends.

Presumably the "profit" is after paying wages, etc. to the employees.

And after Corporation Tax of 19%!!

I don't see how it cannot be.

Dividends may *only* be paid out of profits. (Distributed) profits are charged to CT.

How can you distribute money that's not subject (or previously been subject) to CT?

tim

It was not always thus. There was a time when small company profits below £50k were not charged the full 19% "small companies rate" of CT, and indeed profits below £10k were exempt altogether. Then, all of a sudden, the trainee devils created NCDT which re-imposed a kind of pseudo-CT on any small company dividends which were actually distributed, using a complicated system which nobody understood. Then they realised how daft it was, and just abolished the nil-rate starting band. So now (that is to say soon, i.e. from this April) all profits are subject to CT whethre distributed or not.

I'm aware that there was a short period where this was the case, but that period has come and gone, back to as it was before Mr B meddled in something that he (obviously) didn't understand.

tim

Not gone yet!