Does the £5k dividend allowance consume any of the basic rate band?

[Alan @ BroomeAffinity]

I'm interested in this too, although I may not be able to do anything about it regardless (my business is getting paid on 13th April for the work I'm doing in March, and won't have a penny to its name until then). If (theoretically) I can get an advance on my invoice to bring it into this tax year, but I've already earned a shade over £50k gross as an employee up until 24th Feb, would I still be able to declare a dividend and receive my £5k entitlement without paying tax? Is there another way out of this hole?

You *could* use a directors loan account but with great care: loan the company £5,000 then when you've issued your invoice - on 31/03 presumably - declare and pay the dividend of £5,000. Once the invoice is paid, repay the loan. Take care to get the paperwork right.

[MarillionFan]

Just spotted this, had the same question. I'd hit 150k earlier in the year as a permie and was planning to take 5k tax free. I asked my accountant, but another contractor turned to me yesterday when discussing this and said that no, that was wrong and I would land up paying tax.

Now not so sure.

[TheCyclingProgrammer]

The first £5K of any dividend income will always be taxed at 0%, regardless of your total income.

Employment income is taxed first so taking £5K of dividends won't, for example, push your salary up into a higher band but the dividends will "use up" part of whatever band you're in, i.e they will contribute towards your total income when figuring out what band of tax you're in.

[SeanT]

You *could* use a directors loan account but with great care: loan the company £5,000 then when you've issued your invoice - on 31/03 presumably - declare and pay the dividend of £5,000. Once the invoice is paid, repay the loan. Take care to get the paperwork right.

That's what I thought, but my accountant said "That’s correct, there wouldn’t be any benefit in you loaning the money to the Limited Company as this is then just paid back as a Directors Loan"

Hmm. I guess the distinction is whether I make the loan after the invoice...

[psychocandy]

Am I right?

8K salary. So first 3K of dividend is tax free. (because allowance is £11K).

Then theres the first 5K after this - only more than this attracts dividend tax. Correct?

My accountants explained to me a million times.... but I still might be talking bollox.

[barrydidit]

My accountants explained to me a million times.... but I still might be talking bollox.

I think you should update your sig with that pearl of wisdom

[TheCyclingProgrammer]

Am I right?

8K salary. So first 3K of dividend is tax free. (because allowance is £11K).

Then theres the first 5K after this - only more than this attracts dividend tax. Correct?

Yes, the £5k allowance applies to the first £5k of taxable dividends, i.e. those above the personal tax allowance. Likewise, its not used up by any dividends paid on shares in an ISA.