Dividends

[missspeedy23]

Can anyone tell me how dividends work? It's one thing I didn't study at college and not sure how to show it in my husbands accounts. I've read that there needs to be a dividend voucher but the 10% tax credit is confusing me! As long as my hubby's income doesn't go over �34k does he not pay tax??

If the payment to my hubby is gross (90%) then how do I actually show it in the accounts as the way I'm reading it, for example my hubby was paid �900 but the cost to the comany is �1000? How do I show the extra �100?

Sorry for all the questions but just want to understand it a bit better!

[R1Geezer]

The amount he got was 90% of the total before the tax was taken out so let's call the original dividend D and and the amount he got N. So:

N = 0.9 x D
therefore

D = N/0.9

so the amount of dividend is whatever he got after tax divided by 0.9.

He would not have to pay an more unless he get's into the higher rate bracket.

[R1Geezer]

In the case you talk about the dividend voucher would show

Dividend paid of 1000 and tax credit of �100 with Net dividend �900 (900/0.9 =1000).

[missspeedy23]

Doc - already done that - doesn't show how to account for it though, but thanks for the constructive input!

[Skyline D]

It's not really clear what exactly you are asking here? What accounts?

Does your husband have his own limited company and wants to pay himself a dividend? If so, just pay out what you want to pay over to him from the company bank account and account for it as dividends paid in the company ledgers. If he has a company he must presumably have an accountant to do the annual accounts and tax returns so they'll take care of anything else. Your husband personally doesn't need to account for it anywhere other than his own tax return which presumably the accountant also does and, yes, unless he's a higher rate taxpayer (40%) then he's deemed to have no further tax to pay on it.

If on the other hand his business is not incorporated then it cannot pay dividends so the point is moot.

If you are asking how to account for dividend income received BY your husband from some other company nothing to do with his own business then that wouldn't normally be accounted for within the business either as it has nothing to do with it. You'd just include the information on his tax return completely separate to any business profits. Or in practice presumably, you'd give the counterfoils / information to his accountant to do it.

[buildersmate]

Misspeedy - you don't have to account for it in the Ltd Co. The Ltd Co has to pay corporation tax. Dividends then come out of taxed income. Pay Divi to individual. End of story at that end.

Money gets shifted into personal income. HMRC treats it that 10% tax credit is paid. Therefore HMRC divides the divi received by 0.9 when calculating gross income. The same situation as when they deal with bank interest taxed at source, for which they use the factor 0.8 to divide by.
When working out the gross income, you have to take the earned income, plus any bank interest/0.8, plus any dividends/0.9, and keep that figure under the magic �34k (plus the personal allowance of �6k), or else you end up paying tax on the excess at 40%.

[buildersmate]

My answer was constructed before I saw Skyline's efforts - sorry if it duplicates.