Dividend income

Laura8192

If a client has paid themselves £7,488 a year salary, and £35,000 in dividends, would there be any additional tax to pay on the dividends?

I am getting a bit confused over the dividend rate changing at £34,370 (2012/13 rates), as the client will obviously have a tax free allowance of £8,105. So if the higher rate divided rate only charged when dividends are over £42,475?

I am new to the world of Limited Companies, and only taking on clients with the support of a mentor but I don't want to keep bugging my mentor with questions when I am only trying to get my head around the theory behind things!

Thanks
Laura

peaman

If they actually received a £35k dividend, this will be deemed to be paid after the 10% tax deduction, so you will need to gross this up for the tax comp. (£35,000 / 9 x 10 = £38,888).

Therefore total income is £7,488 + £38,888 = £46,376, so yes, there will be some higher rate tax to pay.

Laura8192

thanks, I got there in the end as well, forgot about the grossing up the dividend, all makes sense now.