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bigduckontax, Accountant
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Tax dividends rules -April 6th and post-April 6th 2016 and

Customer Question

Tax dividends rules for pre-April 6th and post-April 6th 2016 and do I need to let my employer know.
I work full time earning £32000 a year for someone else and I also own a very small limited company which I don't take a salary from as it doesn't make enough profit.
I took a £400 dividend from it last year which I am now declaring on my CT600 form for last year. My question is do I have to declare this on a self assessment form? Also, my current employer who doesn't know I have a company is changing the company to a partnership which means I have to fill in a self assessment form for them so I need to know if a small dividend will affect my tax code based on my 32k separate salary and if I will need to declare it on the self assessment form. I don't want them knowing about my company if I can avoid it.
Thanks,
Mark
Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.

Hello Mark, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Yes you do have to declare this dividend with its notional tax credit on your annual self assessment tax return. If, after deduction of your Personal Allowance plus the dividend, your overall income is within the basic rate tax bracket there will be no further tax to pay as the notional tax credit on the dividend covers it. It will not affect your tax coding and even if it did your employer is not privy to any information other than the tax code to be applied to your salary.

You need not worry, your secret is safe. I do hope that you have found my reply of assistance.

Customer: replied 9 months ago.
Hi Keith,Thanks. I just have a couple of queries regarding this.1. When you say "Yes you do have to declare this dividend with its notional tax credit". Will this be £44.44 on a £400 dividend?
2. With regards ***** ***** personal allowance, the higher tax bracket kicks in at £32,001 and I earn £32,000 without a dividend so will I have to pay 40% on a £400 dividend or do I not have to declare a paye salary on a self assessment form as the tax has already been taken care of?Thanks,
Mark
Expert:  bigduckontax replied 9 months ago.

The dividend of GBP 400 will have a notional tax credit of 10% attached.

The basic rate tax band for 15/16 is GBP 31785 so you should not be in the higher rate tax band (40%) at all. The dividend will be grossed up for tax giving you an income of 32400. From this deduct your personal allowance of 10.6K [15/16 rates]. Of this 21185 will be taxed at 20%. The tax deducted through PAYE and the notional tax on the dividend will offset this liability and you should have no outstanding sum to settle by 31 January 2017. You will, of course, have to declare your PAYE income and the tax deducted on your self assessment tax return also. You only have to declare in round pounds.

In 16/17 the taxation of dividends changes as follows [source: Gov UK web site]:

'You’ll pay tax on any dividends you receive over £5,000 at the following rates:

  • 7.5% on dividend income within the basic rate band
  • 32.5% on dividend income within the higher rate band
  • 38.1% on dividend income within the additional rate band'

So in your case from the 16/17 tax year your GBP 400 dividend income would be tax free.

HMRC may, in the longer term, adjust your tax coding in an attempt to make you tax neutral at the conclusion of each tax year, but this would appear unlikely in the light of your taxable income being well below the 40% tax threshold..

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bigduckontax, Accountant
Category: Tax
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Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 9 months ago.

Thank you for your support.

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