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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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Good morning. ths may seem a very simple question to which

Resolved Question:

Good morning. ths may seem a very simple question to which i should know the answer....but bare with me please. past 3 years I have paid corporation tax on the profit of my business. this profit has then been paid to me as a dividend which i am then paying tax on again as a income on my personal tax return. surely i am paying tax on the same amount twice. any advise appreciated.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
and welcome to the site. Thank you question.

Let's separate the two..

Corporation tax is tax on profits made by the company and the company pays it.
Dividends paid to you are distribution of the company's taxed profits.
Dividends carry a notional tax of 10%.

When you file your tax return you gross up the dividends notional tax and you also get a tax credit same amount.

If you are a basic rate taxpayer the dividends paid to you carry no more tax liability as the grossing up and tax credit cancel each other.

You would only have to pay additional tax if you were a higher rate taxpayer otherwise no more tax to pay.

More information on how dividends are taxed is covered here

http://www.which.co.uk/money/tax/guides/tax-on-savings-and-investments/dividend-tax/


I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 2 years ago.

Thanks reply ..but...although that may be in simple terms to you its not clear to me. please try again .

Expert:  taxadvisor.uk replied 2 years ago.
Richard, I am drafting a worked example and will revert to you shortly

Many thanks
Customer: replied 2 years ago.

I used commercialy available and hmrc approved software . All i did was punch in the required data. the software calculated the corporation tax due and submitted this to HMRC.which I thn paid. I also received a self assessment tax return from HMRC which I completed .On the self assessment return a put down the business dividend which had been paid to me . I put this down as income.I have then been charged tax on this amount. Surely this is paying twice on the same amount.

Expert:  taxadvisor.uk replied 2 years ago.
Richard, thanks reply..

Here is a worked example perusal.

Example of tax calculation
Tax year 2013-14
Total from all employments 10000
Profit from self-employment 0
UK pensions and sate benefits 0
Interest received from UK banks and building societies 500
Dividends from Uk companies (plus 10% tax credit) 10000
Total income received 20500
Minus personal allowance 9440
TOTAL income on which tax is due 11060
Income tax due
Pay, pensions and profit etc 560 20% 112
Interest received 500 20% 100
Dividends from UK companies 10000 10% 1000
Total income on which tax has been charged 11060
Income tax charged 1212
Minus tax deducted
Interest received 100
Dividends from UK companies 1000 1100
Income tax due after tax deductions and tax credit 112


I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

I understand your examplw it is similiar to the payment demand I received from HMRC.( I think your example is showing self assessment.) I believe my error is earlier than this... go back to Corporation tax.Should I have include the dividend as part of the companies expenditure/costs .....rather than as part of the profit after expenditure/costs.

Expert:  taxadvisor.uk replied 2 years ago.
Richard, thank you reply.

Dividends is not part of companies expenditure/costs..
It is recorded after profit after tax

Description this year this year last year last year
of account box amount box amount
PROFIT AND LOSS
PROFIT OR (LOSS) BEFORE TAX AC32 0 AC33 0
TAX AC34 0 AC35 0
PROFIT OR (LOSS) YEAR AC36 0 AC37 0
DIVIDENDS PERIOD AC38 0 AC39 0
TRANSFERRED TO RESERVES AC40 0 AC41 0
I hope this is helpful
Customer: replied 2 years ago.

then my corporation tax returns are correct....however.

In your example you show " total from all employments " is 10,000

then " dividends from companies " as 10,000

(forget the interest of 500

thus giving a total income of 20,000

but in my case I dont have any other income other than the dividend.

Expert:  taxadvisor.uk replied 2 years ago.

Richard, I was giving you an example...

Showing how tax is calculated ..

Your tax would be calculated based on what income you had including dividends but dividends carry a tax credit of 10%

I hope this is helpful.

Customer: replied 2 years ago.

So nearly there. ...please be patient. So in my case assessement there should be no figure in the " total from employment " column. Is that correct.

Expert:  taxadvisor.uk replied 2 years ago.
Richard, thank you reply.

If all you received in the tax year was dividends and interest then no figure from employment.

I hope this is helpful.
Customer: replied 2 years ago.

Ok....thanks....then this would appear to be my mistake.. .I will check my kadt three returns and get back to you. If this is the case how do I claim the overpaid tax back.?

Expert:  taxadvisor.uk replied 2 years ago.
Richard, if the error is in tax return 2013, you can send amended return up to 31 Jan 2015.

Otherwise, you write to HMRC and advise them of the errors.

I hope this is helpful and answers your question.


If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited .

Expert:  taxadvisor.uk replied 2 years ago.
I thank you my answer.

Best wishes.