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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15916
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I understand, when declaring dividends in a Ltd company you

Resolved Question:

I understand, when declaring dividends in a Ltd company you pay the directors the net dividends.
Example of my understanding
Gross Company Profit: £1000
Corporation Tax: £200
Net Company Profit: £800
Gross Dividends: £800
Net Dividends: £720
Dividends Tax Credit: £80
What happens with the dividends tax credit that is still in the company's bank account? Who does that go to and when?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. That's not quite correct. The net dividend is £800. The notional tax credit is £88.88 and the gross dividend for tax purposes for the shareholder is £888.88. In effect, the Treasury is giving credit to the shareholder for some of the corporation tax paid as dividends are paid out of taxed profits. The tax credit is deemed to settle the basic rate tax liability of the shareholder. Take a look here for information on dividends and tax. There is no tax credit in the company. It is a notional figure and is not repayable to the shareholder under any circumstances. From 6 April 2016, there will be a new way of taxing dividends. There will be no tax credit and the £800 dividend will be the gross dividend. Take a look here for information on the new system. I hope this helps but let me know if you have any further questions.
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Customer: replied 1 year ago.
Hi,I see. so If i were to revise my exampleGross Company Profit: £1000
Corporation Tax: £200
Net Company Profit: £800
Net Dividends: £800
Gross Dividends: £888.88
Dividends Tax Credit: £88.88so the tax credit isn't an actual balance in an account, but is stated as "credit", as corporation tax has already been accounted for.
Expert:  TonyTax replied 1 year ago.
That's correct.

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