Dividends and Personal Tax

Figures below are for the tax year 6 April 2014 - 5 April 2015.

If you are a Director and Shareholder of a limited company some of your take-home pay will be PAYE Salary and some will be Dividend income.  The tax for the Salary portion of your income is paid by the company before you receive it so there's no need to provision for any additional tax due on your tax return.  However you may need to provision for additional personal tax due to the Dividends you receive - but only if your total gross taxible income for the tax year is above £41,865*.  This assumes you are entiled to £10K tax free income this year.

If your total gross income** is £41,865 or less

You are not a higher rate tax payer and there is no additional tax to pay on any Dividends you receive.

If your total gross income is above £41,865 

You are a higher rate tax payer and you should prepare to pay some additional income tax.  Any proportion of Dividend received which takes you over this threshold will be taxed at a rate of 25% of the Net Dividend.

HMRC's website provides further information.

Tempo's Personal Online Report

You may find the new Higher Rate Tax report on Tempo gives a good indication of any liabilities so far.  Click "Higher Rate Tax" under the "Company Directors" area of the main menu.

Notes

* This calculated by adding the tax free allowance to the higher rate threshold.

** Don't forget that to calculate your Gross Income you should include the Gross Dividend - this is calculated by taking the actual Dividend amount received (Net Dividend) and dividing by 0.9.  E.g. £900 Net Dividend received is a Gross Dividend of £1,000.  Details here.