Diididends to Directors

moozy7

I'm qualified end 2008 and have years of book-keeping experience. I'm building my confidence and am taking the plunge to do a few voluntary jobs for people,that know me.

I'm after help with the following which I just cant sort out in my head ....

So - we calculate trading profits, and if they're lucky the directors get paid dividends based on the profits available.
Is there a further personal tax liability to be paid by the director? If so how does it fit into a tax computation?

Also - if the directors loan account is overdrawn, past the 9 month deadline, and the company pays 25% for the director, then can claim it back later once the loan is repayed. Again is there a further personal tax liability to be paid by the director?

If the loan is not repayed and is deemed remuneration, is there a personal tax liability in this situation?

Thanks

Moozy

AK002

If the diretors are only paying at basic rate and not higher there is no personal tax to pay on dividends.

I'm not as clued up on the rest - there will be a p11d benefit on an overdrawn loan account tho..

Someone else will confirm the rest tho :-)

moozy7

Ah Thank you - so is that because the Company has paid the 21% corporation tax - ie if the directors paid tax also there would be a doubling up type of thing?

If the directors are paying higher rate of tax do they pay the difference? .....sorry , I tie myself up in knots .... I suppose what i'm asking is how do these dividend payments fit into a directors' tax computation?

Monsoon

The simplest way of looking at dividends is:

Company makes profit of £10k
Company pays tax of £2100
Taxed profit of £7900 which can be paid as a dividend.

£7900 is paid as a dividend.
To a basic rate taxpayer, this is effectively tax free*
To a higher rate taxpayer, they pay an extra 25% of this in tax.

*The more complex answer is that there is a 10% tax credit attached, so the dividend, even though the actual amount paid was £7900, was actually £8777.77 gross, with £877.77 tax credit. The £877.77 never gets paid to anyone, its 'deemed' to have been paid when the CT was paid.
The tax on dividends for higher rate folk is 32.5% which equates to 25% of the dividend payment, given that 10% tax has already been 'suffered'.

Who said tax doesn't have to be taxing?

Monsoon

moozy7 wrote: »

Also - if the directors loan account is overdrawn, past the 9 month deadline, and the company pays 25% for the director, then can claim it back later once the loan is repayed. Again is there a further personal tax liability to be paid by the director?

Yes you can reclaim the s.419 tax

The personal tax liability relates to the beneficial loan rules and a benefit in kind is calculated if a loan is more than £5000; the BIK relates to the amount of interest they didn't have to pay.

If the loan is not repayed and is deemed remuneration, is there a personal tax liability in this situation?

If it's deemed remuneration, then this would be salary or dividend and taxed accordingly.

If it's just a loan written off, there is different tax treatment and I can't remember what it is offhand, sorry.

moozy7

Thank you Monsoon for your time - much appreciated - Thank you

deanshepherd

Monsoon wrote: »

If it's just a loan written off, there is different tax treatment and I can't remember what it is offhand, sorry.

Income distribution in the hands of the director/shareholder.

Also assessable to Class 1 NIC (rather annoyingly!)