Hi.

A limited company with profits up to £300,000 will pay Corporation Tax at 20%. Dividends carry a notional 10% tax credit so a £900 dividend payment equates £1,000 gross for Income Tax purposes. Nothing is paid to the tax office in relation to the tax credit.

The notional tax credit is deemed to settle the shareholder's basic rate tax liability on the dividend and they will only have additional personal tax to pay if their total gross income exceeds £42,475 in 2012/13.

Take a look here for more information on tax and dividends.

Let me know if you have any further queries.

If you paid yourself a dividend of £12,000, that would be £13,333 gross with a £1,333 tax credit. Add that to your salary of £35,000 and your total income would be £48,333. The first £8,105 of your income would be tax free leaving £40,228 taxable. The first £34,370 would be taxed at 10 or 20% depending on whether it is salary or dividend leaving £5,858 taxable at 32.5% (the dividend rate) giving rise to a gross liability of £1,904. Deduct the tax credit of £1,333 and you are left with a net liability of £571.