Tax Tip 27: How to understand the basics of Corporation Tax

– It’s paid by Limited Companies on their taxable profits.

–   The small companies rate for profits from zero to £300,000 is 21% of their taxable profits. Above £300,000 up to £1,500,000 the rate is 29.75% on the excess and at 28% on any amounts above £1,500,000.

– Salaries paid to directors are deducted in arriving at the taxable profits but dividends are not.

 – For basic rate taxpayers, dividends attract no income tax at all, for those in the 40% tax band, there is further tax to pay of 22.5% of the gross dividend and for  those in the 50% tax band there is further tax to pay of 32.5% of the gross dividend. The gross dividend less a notional 10% tax credit is the amount of the net dividend paid. Simple!

 If in doubt – ask an accountant.

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