Tax on dividend

Tax on dividend

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If a small company has one shareholder and a dividend is paid, is there any difference in the amount of corporate or personal tax payable if the shareholder is also a director of the company, or is just the shareholder but not a director?

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By andy.partridge
07th Jun 2012 12:04

No

The fact that the shareholder is also a director is not relevant.

There is no tax on the company and the dividend is not a tax-deductible expense either. The tax is borne by the recipient of the income, ie. the shareholder. 

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By wgreen
07th Jun 2012 12:28

Thank you. So if the business owner is just the shareholder but not a director they can still receive a dividend and pay tax at the same rate as if they were a director/shareholder.

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By User deleted
07th Jun 2012 12:35

To play Devil's Advocate

If the shareholder is nothing more than that, there can be no possible challenge that the dividend is anything other than a dividend. But as a director - depending on frequency of dividends and other factors - there is a possible risk that HMRC may seek to tax the dividend as earnings.

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By Steve Holloway
07th Jun 2012 13:54

Frequency is not relevant...

record keeping, paperwork and sufficient reserves are however.

@ Wgreen ... not sure of your angle on this but if the person drawing the dividend is 'the business owner' then they would be a de facto director regardless of whether they have filled out the form. As Andy says though, it still makes no odds as to their rate of tax. Perhaps if you tell us what the actual issue is then we could advise you whether you have a problem or not?

 

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By wgreen
08th Jun 2012 14:49

The reason for asking is that the director is no longer running the business and decided to retire/resign. The business had become smaller and was left with just one full time employee who had been with the company many years. He took over as the director. The owner asked if there was any tax implications in this arrangement. I doesn't look like there are. Are there? Or are any other implications for him or the company?

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By User deleted
08th Jun 2012 15:08

@Steve

Until we know how HMRC are going to react to PA Holdings, I don't think anyone can say with certainty that frequency is not relevant. Proper paperwork may be the most important factor but in the event of a question, I suspect that, eg,  monthly dividends of a fixed amount are going to be harder to defend. Remember, it's not HMRC that will make the decision - ultimately it may be the Tribunal, or higher, that will decide on the substance of the payments.

The 'fears' may well be unfounded - I have heard some go so far as saying that there is no chance of HMRC attacking small company dividend arrangements and that they would kick any HMRC challenge into touch. I wish I could be so certain.

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