Requirements of Limited Companies

[monkeygeorge]

I presume a lot of people would be using something similar to XLmonkey's srategy. But isn't it difficult surviving on the minimum wage and having to wait three months to get a payment?

I take it this is the safest way to do it to avoid being 'picked out'?

As I'm used to taking a dividend every week, this will be difficult for me to adjust to when I go limited in April.

It would be useful to hear other peoples' strategy.

[XLMonkey]

the key's in the last para - trying not to pay yourself everything that you earn. contracting's a pretty uncertain game and you can end up with periods out of work when you need to be living on savings. if you're paying yourself everything that you earn, every week, then the odds are that you'll be horribly vulnerable when the contract ends.

if you're not paying yourself everything that you earn, then it's just a case of building up a buffer of money and paying dividends less frequently.

of course, paying yourself less than you earn is rather easier said than done, particularly when the price of bananas has gone up so much.

[themistry]

XLMonkey, thats exactly what I wanted to hear. Many thanks for this post!

i think the advice for buffering money is valid, however my situation at the moment is such that

1) I could go quite happily for some time without a contract renewal
2) I want to invest much of my money in personal ISAs (both mine and my wifes) etc and not in fee charging low interest company savings accounts.

The one facet I do not know the answer to is if dividend payments are fully taxed? I.e. if I earn £15k min wage but take £50k in dividends over a year, will approx £30k of that (of my £65k total) be taxed at 40%, £30k at 22% etc? If not, how do dividends work?

And continuing from monkeygeorge's post, how often can dividends be claimed, both technically (i.e. can you claim one every day) and realistically (in the eyes of HMRC)?

Thanks again for your help!
TM

[malvolio]

You're doing it again. The answers are published, on the web, in here and in the guides. Or you ask your accountant...

[Nixon Williams]

The one facet I do not know the answer to is if dividend payments are fully taxed? I.e. if I earn £15k min wage but take £50k in dividends over a year, will approx £30k of that (of my £65k total) be taxed at 40%, £30k at 22% etc? If not, how do dividends work?

And continuing from monkeygeorge's post, how often can dividends be claimed, both technically (i.e. can you claim one every day) and realistically (in the eyes of HMRC)?

Thanks again for your help!
TM

In 2006/07 if you took £50K in divs then the gross dividend would be £55,556, added to the salary would give a total income of £70,556.

Assuming the salary has been taxed under PAYE etc, then the extra tax due on the dividends would be (£70556-£38335) X 22.5% = £7249.73

There is no restriction on how often dividends can be paid but they must be paid from profits. Most businesses calculate profits monthly so in reality this is probably how often they could be done. We calculate profits monthly for our clients, some do them quarterly as it is more work!

I hope this helps.

Alan

[themistry]

I hope this helps.

Alan

Many thanks Nixon,

and dividend payments are only possible when the contract is not affected by IR35? Do you ensure this with your clients also?

TM

[Nixon Williams]

Many thanks Nixon,

and dividend payments are only possible when the contract is not affected by IR35? Do you ensure this with your clients also?

TM

Dividends are possible within IR35 but in reality very little profit is left, however any that is left can be paid as a dividend.

Not sure what you mean with reference to our clients, if they are caught by IR35 then most of their income is paid as salary, if there is any profit left they can take a dividend. This is usually done when we issue the draft annual accounts.

Alan

[Goya]

I hope this helps.

Alan

Many thanks Nixon,

TM

Are you really sure contracting is for you?