Ian Sayers Blog: Dividends - a taxing issue?


If you are anything like me, it may only be a matter of weeks since you completed your tax return. But unlike me, I imagine the last thing you would
[See the full post at: Ian Sayers Blog: Dividends - a taxing issue?]


Quite correct. There is no withholding tax on UK dividends. This is in fact one of the key attractions that foreign investors are told about, especially when it comes to setting up a company in the U.

The key point to remember is that it is not a withholding tax. One easy way to remember it i to compare it to an interest payment:

  1. Interest payment - net payment of £80, gross payment of £100. The person paying the interest has to deduct £20 - real money has to be handed over to HMRC. You are taxed on £100, but you get the credit for £20 because it has already been paid ;

  2. Dividend payment of £90 with an attached tax credit of £10. The company paying the dividend pays NOTHING to HMRC. That’s why we say there is no withholding. No real money is handed over to them. You are taxed on £100, but one gets credit for £10 worth of “pretend” money - just as if it had been paid over to HMRC. But no real money changes hands.


It is so ridiculously and needlessly confusing. What are HMRC playing at coming up with such a difficult set of rules.

Thank you to both Ian Sayers and Satwaki Chanda for explaining it.