Tax Refund or Max Divvies

**northernladuk** · 27 February 2017, 08:20

I'd take the 3K in crisp fivers so I've got a bit of pocket change to tip the house staff from time time. HTH

**vwdan** · 27 February 2017, 08:43

Originally posted by northernladuk View Post

I'd take the 3K in crisp fivers so I've got a bit of pocket change to tip the house staff from time time. HTH

Oh, really? It's just that I tip in uncut diamonds and gold bullion - thought that Was The norm?

**NotAllThere** · 27 February 2017, 09:01

Originally posted by vwdan View Post

Oh, really? It's just that I tip in uncut diamonds and gold bullion - thought that Was The norm?

Only for the really poor.

**chopper** · 27 February 2017, 09:46

Originally posted by vwdan View Post

Thoughts? What would you do?

It would have helped to know what the actual income level was. If it was me... if my total earnings were already above £60k, then I'd take extra dividends - £9k in dividends will chew up that £3k personal tax refund, more or less.

If the earnings were below £50k, then I'd take dividends to take total earnings up to £50k. You wouldn't want to unnecessarily hop into that £50k-£60k twilight zone for tax payer parents where you'd need to start returning the child benefit, as that takes the effective tax rate right up.

**Darren at Fox-Bartfield** · 27 February 2017, 09:59

Tax Planning

Originally posted by vwdan View Post

Due to being PAYE for a bit last year and then working to build the old warchest up for the arrival of VWDan Mk 2 I'm going to be owed just over 3k in tax next year.

Are there any particular advantages to carrying on as normal and getting my 3k lump sum vs maxing out my dividends before the year is up.

My personal thought is that, psychologically, I want the refund because it means I'm not touching the company warchest. To neutralise it means taking a lot of cash out that I've really got nothing to do with and may cause me issues down the line if/when I get a contract with long payment terms. For example, I'm 4 weeks into paying upfront for staying in The City.

So, in short, I can pay off my credit card without needing any company cash - lovely.

But, I suppose that's not really tax efficient, so I dunno.

Thoughts? What would you do?

What's your level of income in the current year and what would you typically be taking out/require?

If it's a case of taking it out now so that you're paying 7.5% this year or 32.5% next year then would max out before 5 April at the lower rate. Take it you've used up your £5k tax free?

**vwdan** · 28 February 2017, 15:42

Cheers all - had a play with the figures for this year, and estimates for next year, and I think just drawing out right up to the Higher Rate threshold should do the trick. That seems to be pretty tax efficient, while still leaving good reserves in the company

**chopper** · 28 February 2017, 15:55

Originally posted by vwdan View Post

Cheers all - had a play with the figures for this year, and estimates for next year, and I think just drawing out right up to the Higher Rate threshold should do the trick. That seems to be pretty tax efficient, while still leaving good reserves in the company

I would have thought for most circumstances, withdrawing up to the higher rate threshold (£43k this year, £45k next year) is 'bog standard' given the 7.5% dividend tax is the lowest rate you'll ever be taxed on anything, ever. The 7.5% rate almost certainly isn't going to go down, but it could go up. Keeping reserves in the company will just cost you more to pull it out later if you don't take advantage of the 7.5% rate now.

Never let the tax tail wag the lifestyle dog and there is very little reason to kick the tax can down the road.

And try and open a SIPP and pour money into that from your company for some of your reserves to get some relief on your Corporation Tax bill.

Tax Refund or Max Divvies