Salary or Dividends for tax efficiency when on higher rate?

[Forbes Young]

Hi all,

Thanks for the advice. I'm certainly not trying to avoid paying any tax and I agree with the later comments regarding the Directors Loan idea, so I don't think that's the right choice in this situation. However it seems fairly unanimous that a dividend is better than salary so assuming my accountant is in agreement, that's what I'll do.

Cheers,
Will.

Yes dividends is the most tax efficient - but also remember to take any expenses that need reimbursing to you from your company to you before 5/4/15 eg business car mileage and business travel expenses.

[cwah]

Yes dividends is the most tax efficient - but also remember to take any expenses that need reimbursing to you from your company to you before 5/4/15 eg business car mileage and business travel expenses.

what happens on 5/4/15?

[PerfectStorm]

what happens on 5/4/15?

The 6th is the first day of the new tax year: https://www.gov.uk/government/upload...-deadlines.pdf

[cwah]

thanks

[Willapp]

Yes, I always pay myself expenses each time I receive payment for an invoice for the period covered so that's fine.

Actually another question on a similar subject: I still have quite a bit of my ISA allowance for this year as I've not been saving much while I was in permanent employment. Is there a benefit to me taking as much in dividends as I can before April 5th - paying the tax on it - and filling up my ISA, or leaving most of it in the company account and potentially avoid extra tax in the upcoming tax year?

I'm sure the short-term answer is leave it, as the tax due on the dividends will exceed any initial interest on the ISA, but in the long term I could have an extra £5-10k savings earning me tax-free interest. Thoughts?

[TheCyclingProgrammer]

Not worth it. It would probably take over 20 years to recoup the higher rate tax.

[Forbes Young]

Yes, I always pay myself expenses each time I receive payment for an invoice for the period covered so that's fine.

Actually another question on a similar subject: I still have quite a bit of my ISA allowance for this year as I've not been saving much while I was in permanent employment. Is there a benefit to me taking as much in dividends as I can before April 5th - paying the tax on it - and filling up my ISA, or leaving most of it in the company account and potentially avoid extra tax in the upcoming tax year?

I'm sure the short-term answer is leave it, as the tax due on the dividends will exceed any initial interest on the ISA, but in the long term I could have an extra £5-10k savings earning me tax-free interest. Thoughts?

Remember the few % interest on the ISA is the only thing that's tax-free. This amounts to not much at all! Savings on tax due on dividends is considerably more so concentrate on the timing of the dividend pay out.