Stage 10 – Why you need to submit a tax return and how are dividends taxed
As a company director you will more likely have income from many different sources. You will be taking salary; dividends and you may have expenses or benefits provided to you by your company. You will need to prepare a self-assessment tax return form to gather all these sources of income together to ensure that you are paying the correct amount of personal tax each year.
This is done on the self-assessment tax return form. This must be submitted and paid by the end of January each year for the tax year ended the 5th of April in the preceding year.
If you declare dividends from your company these are now also taxed. The first £2000 of these after the tax-free personal allowance are tax free. Then the dividends are taxed at 7.5% at basic rate tax, 32.5% at the higher rate of tax and 38.1% at the additional rate of tax.
You will also need to make payments on account if the amount of tax you pay is more than £1000. Payments on account are payments towards the next year tax liability, these are estimated based on what you are paying in the current tax return that is being submitted. So, an extra 50% of your tax amount is paid by the 31st of January and a further 50% is paid by the 31st of July each year.