(Hopefully) Quick question re tax rates on dividends

[DrStrange]

Hi

I'll be starting my first contract in June and I'd like to double check the tax situation with regards to dividends.

By the time I start my contract, I'll already have earned around £30k from my permie job (due to a generous retention bonus). At it doesn't seem to make sense to draw a salary from my company in this tax year I thought I'd just wait and then take a dividend later. However, I'm unsure on what tax rates apply to that.

Say I want to take a dividend of £100k in this tax year. Is the whole lot (minus the £2k zero rated allowance) taxed at the Higher Rate of 32.5%?

Or it progressive like the PAYE system so the first £2k of the dividend is zero rated, the next £32,500 is taxed at 7.5%, then the remainder at 32.5%?

I've tried to research this myself but have read conflicting answers and I'm hoping that some kind soul on here can clarify.

Thanks!

[rocketjet]

Question for you accountant really.

[TheCyclingProgrammer]

Dividend tax works in the same way as other income tax. It’s taxed at 0% up to the first £2k above the personal allowance, 7.5% up to the higher rate threshold, then 32.5%. IIRC there’s also an additional rate of about 38%. You also have to account for the phased out personal allowance over £100k total income.

[northernladuk]

Trying to get a bunch of contractors to sort out your accounting with next to no information is never a quick question.

Speak to your accountant and they'll give you a plan for the rest of the year taking in to account all the variables.

[DrStrange]

Thanks for the replies.

I've not got an accountant yet but will obviously run everything past them once I'm fully up and running.

I think my mistake was not realising the different bands aren't actually different bands at all (i.e. the £34,500 "basic dividend" band is because the £11,850 personal allowance has already been factored in and so matches the "basic salary" band of £46,350).

So, going back to my example, am I right is saying that if I receive £31,500 from my permie job then I can take £2k dividends tax free, then another £12,850 @ 7.5%?

Thanks again

[TheCyclingProgrammer]

Trying to get a bunch of contractors to sort out your accounting with next to no information is never a quick question.

Speak to your accountant and they'll give you a plan for the rest of the year taking in to account all the variables.

I’m not getting the “ask your accountant” replies to OP. They asked a very simple and generic question with a very simple answer!

[TheCyclingProgrammer]

Thanks for the replies.

I've not got an accountant yet but will obviously run everything past them once I'm fully up and running.

I think my mistake was not realising the different bands aren't actually different bands at all (i.e. the £34,500 "basic dividend" band is because the £11,850 personal allowance has already been factored in and so matches the "basic salary" band of £46,350).

So, going back to my example, am I right is saying that if I receive £31,500 from my permie job then I can take £2k dividends tax free, then another £12,850 @ 7.5%?

Thanks again

Correct.

[northernladuk]

I’m not getting the “ask your accountant” replies to OP. They asked a very simple and generic question with a very simple answer!

But what else does he need to know that he isn't asking etc....

OP. What you also need to bear in mind is that you need to grow a warchest as soon as possible. You need 3 to 6 months of money in your bank account that you can't touch in case your second gig doesn't come quickly or your first contract get's cancelled early. You are going to have no money coming in so your focus is accumulating money.

[password]

I'm with NLUK on this one..

While it's easy to jump on here and questions like that from OP, it's kind of futile.

Just engage an accountant, it's not terribly expensive and getting a quick turn around on questions from a qualified professional is great.

What is going on here is effectively bar talk.. with missing context information etc..

[DrStrange]

Correct.

Thanks for your time mate.