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@TheBusJourney #SMEJourney
Ian McMonagle
Chartered AccountantsChartered Tax Advisers
Business Development Specialists
Today’s agendaDIVIDENDS
Back to basics / legal aspects
Tax on dividends
Potential tax planning opportunities
Back to basicsOMB/ Private company limited by shares
Shareholders = owners, with limited liabilityDirectors have fiduciary dutiesCompany Act 2006Memo & Arts = power to declare dividends
Declaring dividendsDirectors need to make a reasonable judgement
Directors declare dividends (in a general meeting)
Dividends are paid out of realised (available) profits
No compulsion to recommend or pay a dividend
Extract from HMRC websiteYour company mustn’t pay out more in dividends than its availableprofits from current and previous financial years.
You must usually pay dividends to all shareholders
To pay a dividend, you must:Hold a director’s meeting to ‘declare’ the dividendKeep minutes of the meeting, even if you’re the only director
Extract from HMRC websiteDividend paperwork:For each dividend payment the company makes, you must write up a dividend voucher showing the:• Date• Company name• Names of the shareholders being paid a dividend• Amount of the dividendYou must give a copy of the voucher to recipients of the dividend and keep a copy for your company’s records
Unlawful DividendsIf the requirements of CA2006 are not met
Directors and shareholders can be personally responsible
HMRC could argue that payments are salary
Tax on dividendsImputation system abolished from 6th April 2016
No grossing-up required for personal tax
0% tax on the first £5,000 of dividends(This is not an exemption)
Dividend tax rates2015/2016 2016/2017
Basic rate band 0% 7.5%
Higher rate band 25% 32.5%
Upper rate band 30.56% 38.1%
Tax on dividendsIt’s difficult to directly compare
Tax and NIC free 2015/2016: £38,9532016/2017: £16,000
Basic rate ceiling 2015/2016: £38,953 = £0 tax2016/2017: £43,000 = £2,025 tax
Planning opportunitiesEmployer’s Allowance for NIC
Gift shares to family members (over 18 y.o.a.) (With no caveats or restrictions)
Alphabet shares
Pay dividends up to £5,000 tax-free
Warning! : planning needs very careful considerations
In summary:Get the paperwork right each time
Prepare for potentially higher tax bills
Consider tax planning and share reconstruction
Get advice!
@TheBusJourney #SMEJourney
Thank you.
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