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  1. #1

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    Exclamation Retrospectively claim dividends as salary - how far back?

    Hi everyone,

    I'm new to running a limited company and I have made the mistake of paying myself and the other 50% shareholder solely in dividends - 15,000 since our incorporation on 03/02/2015. I should note that we're a new start-up and neither director has any other sources of income.

    I'm now discovering that even though the business earns very little, (we've only received 7,500 each, up to year end 29 Feb 2016), that we have to pay quite a lot of tax as dividends are from profits subject to cooperation tax. Better would have been to have a salary it seems, since we have no other incomes (please correct me if I'm wrong).

    What I'd like to know is, is there any way we can turn these dividends into salary by paying the appropriate NIC's on them? I've been told I can do it with dividends paid after 01 March 2016 up until now. But the real stinger for us is the amount due to be paid soon (3rd Nov) due to the 15,000 paid out in dividends from 03/02/2015 (incorporation) to year end 29 Feb 2016.

    Any advice would be much appreciated. It's a big hit for us to pay tax that could have been avoided when our incomes are currently so low.

    Thanks,
    J

  2. #2

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    We could start with you illegally paying out dividends well in excess of your profits, but let's not go there...

    It is a repairable situation before year end, but you need professional advice. Get yourself an accountant and let them help you out. there's a thread somewhere on the best ones to use.

    And then find time to learn how to operate a company properly. There's plenty of resources around to get you started, including over there on the right
    Blog? What blog...?

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    Why are you running a limited for those numbers? There was a rule of thumb before the dividend tax that you were better of through a brolly under 30k income. No chances of you getting it so badly wrong through one of them either.
    'CUK forum personality of 2011' - Winner - Yes really!!!!

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    Quote Originally Posted by malvolio View Post
    We could start with you illegally paying out dividends well in excess of your profits
    Sorry, I probably didn't make myself clear. The dividends we made were from profits the company had made. Even with the dividends paid out there is more money in the company accounts than when we started, it's just that we should have paid that money out in a salary rather than dividends. I'm just looking to reverse the mistake if possible.

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    Quote Originally Posted by James131 View Post
    Sorry, I probably didn't make myself clear. The dividends we made were from profits the company had made. Even with the dividends paid out there is more money in the company accounts than when we started, it's just that we should have paid that money out in a salary rather than dividends. I'm just looking to reverse the mistake if possible.
    Am I missing the point here. What taxes? On what?
    Your divi is for your personal tax year until 6 april 2016, right?
    If so, and if your only income is 7500 from divi you don't owe any tax.

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    Quote Originally Posted by northernladuk View Post
    Why are you running a limited for those numbers? There was a rule of thumb before the dividend tax that you were better of through a brolly under 30k income. No chances of you getting it so badly wrong through one of them either.
    That's interesting, I hadn't heard that before but things are already looking up - so I think .ltd will make sense in the long run.

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    Look for a bloke in a blue police box. He may be able to help you.

    When you say "should" you mean you've realised you could have avoided some tax. There's nothing wrong with what you've done; it was just dumb.
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    Quote Originally Posted by kolata View Post
    Am I missing the point here. What taxes? On what?
    Your divi is for your personal tax year until 6 april 2016, right?
    If so, and if your only income is 7500 from divi you don't owe any tax.
    I'm looking for a way to (legally) avoid the cooperation tax. Salaries would have been classified as expenses for the ltd, but dividends are paid from profits so the company will have to pay 20% on that 15,000 - right?

    Sorry, I'm sure this is frustrating for you, but I appreciate your help.

  9. #9
    pr1
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    Quote Originally Posted by kolata View Post
    Am I missing the point here. What taxes? On what?
    Your divi is for your personal tax year until 6 april 2016, right?
    If so, and if your only income is 7500 from divi you don't owe any tax.
    HisCo has paid corp tax (20%) on the profits in order to pay a dividend - if it was salary (up to 11k each) neither hisco nor he would pay any tax

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    Quote Originally Posted by pr1 View Post
    HisCo has paid corp tax (20%) on the profits in order to pay a dividend - if it was salary (up to 11k each) neither hisco nor he would pay any tax
    Yes I got it now. Ask your accountant.

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