Tax payers cannot claim the 10 per cent income tax dividends credit if your taxable income is less than your personal tax allowance as no tax is payable. This is because the 10 per cent income tax dividends tax rate is a credit against any income tax due, not a tax refund.
When the dividend is paid the company also issues a dividend voucher stating the amount paid and the dividend tax credit. The dividend paid is quoted net of the 10 per cent dividend tax credit. For example a 10,000 dividend payment is the net amount after deducting the 1,111 dividend taxes credit.
Considering the net salary paid to that director and shareholder would after income tax and employee national insurance at the standard rate be just 68.5 per cent the paye deductions far outweigh the increased corporation tax liability.
For a small company with the financial year ending after April 2009 the amount of money not taken as salary increases the corporation tax liability by 22 per cent but assuming the salary would be below the higher threshold saves the company 12.5 per cent employers national insurance reducing the net tax effect to the company at just 9.5 per cent