In the UK, does a person have to pay tax on a dividend received from a private limited company?

Question

The reason I ask is that it seems unfair. If a company earns 1000 in a year, it has several strategies:

1. Pay someone 100, leaving 900 for the company. The somone pays income tax of 20% of 100, and the company pays corporation tax of 20% of 900, making a total tax bill of 20% x 1000 = 200

2. Pay the 100 as a dividend. In this case, the company's profit is 1000, so the company pays 20% x 1000 = 200 as corporation tax. If the person also pays 20% x 100 = 20 tax on the dividend, then the total tax take is 220

The nproblem is that, in the company acounts, the dividend is taken out after tax, not before. Strategy 2 therefore seems to involve double payment of tax. Which definitely seems unfair!

Answer 1

Yes as it is income.