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Tax, Pensions & Dividends

The corporation tax rate is 20%. Both salary and pension contributions paid out by the company are tax allowable. So for instance, for each £100 paid out by the company in pension contributions, it saves £20 corporation tax.  Corporation tax is not paid on dividends – it is paid on company profits.

With regards to your personal tax position your overall gross personal income i.e. including salary and dividends needs to be a maximum of £41,865 in the current tax year – otherwise you pay income tax on the excess of dividends taken over this threshold at the rate of 25%.

So for instance, the maximum amount of net dividends to take before you pay tax if your only other income is salary at £7,956 (£663 per month) is £30,518 net (i.e. what you actually take). Any more dividends above this will incur tax at the rate of 25% on the net dividend taken.

So, for example, if you take £50k net dividends with £7,956 salary then you would pay (£50,000 – £30,518 = £19,482 x 25% =) £4,870.50 income tax. You can take more dividends without paying income tax if you personally pay into a personal pension plan as such contributions attract tax relief. If, however, you are a Higher Rate Tax payer (i.e. total gross earnings are over £41,865) it’s better to have your company pay into a scheme for you as opposed to making personal contributions. A company scheme can be set up by your IFA.

From Graeme Bennett of Forbes Young

By Contractor Weekly


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1 thought on “Tax, Pensions & Dividends”

  1. Violet

    It also offers various schemes that can be helpful for the tax payers to reduce their amount of tax.
    The income tax form is available on the IRS website and can be downloaded from there.
    gov to learn more about the right way to prepare and file taxes.

    my site … Income Tax Preparer:

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