Dividends & Tax Planning : New Company
Dividends and tax planning for a new company are important considerations for every business startup. And, if you are a director/shareholder of a newly incorporated company, one question you will have is:
How do I withdraw money from the company?
Dividends
As a shareholder, you can vote dividends out of the company, provided the company has sufficient realised distributable profits available.
- When calculating the amount of profit available for distribution, you need to allow for the corporation tax that will be payable, currently charged at 19%, 25% or a marginal rate depending on the profits of the company.
Tax Planning
Corporation tax is not payable until 9 months after the company’s financial period end. However, the amount of corporation tax payable will be brought into the company’s financial statements. This will reduce the amount of realised profits available for distribution.
- Dividends do not reduce the amount of profit subject to corporation tax.
You will need to declare any dividends received on your self assessment tax return. Each individual receives a tax free personal allowance of £12,570 (frozen until 2025/2026). Plus a tax free dividend allowance of £1,000 from April 2023 falling to £500 from April 2024.
Dividend Income Tax Rates (2022/23)
- 8.75% for basic rate tax payers.
- 33.75% for higher rate tax payers.
- 39.35% for additional rate tax payers.
Drawing a Wage
As a director of the company you may also wish to consider registering the company for a PAYE scheme and drawing a wage from the company.
If you have other sources of income in a tax year that cover your personal allowance, we would not normally advocate drawing a wage from the company.
However, if you do not have any other sources of income in a tax year, we would recommend that you take a wage from the company up to the national insurance threshold.
There would be no personal tax or national insurance payable on this wage. However these wages would be a deduction against profits for corporation tax, therefore saving the company corporation tax.
Year-end Tax Planning
At Shaw Austin we help you to decide the best method of profit extraction for you, from the outset.
When we come to prepare the financial statements for the company, every client has a meeting with a senior staff member:
- to finalise the draft financial statements,
- look at the corporation tax position for the company and
- review your personal tax position.
We can also assist with your personal self assessment tax return, if required.
Shaw Austin are a firm of Chartered Accountants based in Chester supporting independent business throughout the UK. We take the headache out of business accounting and taxation by providing our clients with a personal service.
This article includes tax rates and allowances correct on date of publishing – tax rates and allowances can change from year to year. This is a general post to assist readers. Professional advice should always be taken in respect of your personal circumstances.
Updated April 2023
