Maximising Your Profits Understanding Taxes for Corporate Dividends

9 Aug 2023 · 1 min

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In this segment, the speaker explains how UK corporation tax applies to company profits and how it influences dividend payouts. Profits under £50,000 are taxed at 19% corporation tax. Profits above £250,000 incur a 25% corporation tax rate. The middle band (£50k‑£250k) effectively results in a 26.5% tax rate due to a gradual increase between the lower and upper bands. The speaker emphasizes that calculating corporation tax is essential for determining overall salary and dividend strategies. Additionally, the dividend tax rate has risen from 7.5% to 12.5%, affecting the net amount received by shareholders.

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If you do pay yourself dividends, obviously if you've made profit and your profit is less than £50,000, you have to set aside 19% of that profit for corporation tax. So that's really important to remember. They've introduced a new tier recently, which means that over above £250,000 worth of profit, which you may or may not fall into, you have to contribute 25% towards corporation tax. And there's this grey area in the middle which is between £50K and £250,000 profit, where effectively you're taxed at 26.5% because it has to ratchet up the amount of tax you, you pay between 19% and 25% in those 2 bands. Understanding how much corporation tax you've got to pay is, is a really part— important part of this calculation in terms of your overall salary. The second tax you've got to pay is a dividend tax. So that used to be 7.5%, it's now 12.5%.