Basic Salary of £5,000?

[IR35 Avoider]

Say what? How do you equate those two statements then?

Not sure what looks contradictory to you?

[Gonzo]

Am I right in thinking that If my salary is £10k then the rest can be taken in dividends without any further tax to pay (i.e 19% Corp Tax) providing I'm below the £38,300? (I think that it £38,300 this Tax Year?).

Yes. This government have made the calculations ludicrous but because your company has paid corporation tax on the revenue then the dividends are received with a 10% tax credit.

This 10% tax credit covers the tax that you as an individual have to pay (22%) below the higher rate threshold.

Be carfeul though because the £38,300 or whatever it is includes ALL your income including, but not limited to, salary, dividends, bank account interest.

Usual disclaimer: I am not an accountant. I am not FSA registered. I am not authorised to give financial advice etc etc.

[malvolio]

Not sure what looks contradictory to you?

Not contradictory, incomprehensible - unless I'm being dim (always a possibility!). If you take £5k salary and shove everything else into a pension fund, do you live on £96.15 a week? Or if you do take divis up to £38k, how does that align to "assuming you're IR35 caught"?

[Maxamus]

this is getting complicating.

[Maxamus]

whats this 10% tax credit on dividents?
All i know is that i pay 19% corp tax on the dividents i take out. Where does the 10% come into play?

My company expenses keep me below the 40% tax bracket so does that mean all i pay is 19% on the company profits?

Someone explain this 10% tax credit to me.

[minstrel]

Someone explain this 10% tax credit to me.

Income from dividends is treated as if 10% has been paid already.

So, if you distribute £90 dividends, that is actually considered as a £100 gross dividend (£90 recieved plus a £10 tax credit)

You are taxed 10% (as basic rate tax payer) on dividends, but you have effectively already paid this because you only actually received the £90.

It's a bit like when banks deduct tax from interest payments before giving it to you.

You'll see the 10% credit on any dividend certificates you receive.

If you submit tax return on line you'll also see that dividends are entered net of the 10% credit (i.e. what you actually received) but they get the 10% added on in the calculations (and then generally deducted again later on).

I agree it's a bit confusing.

The key thing to remember is that the 10% is there - especially if you are looking to get to exactly the Higher Rate tax threshold. £27k of dividends received is actually £30k of income on your tax return.

[malvolio]

A glimmer of understanding at last....

My company expenses keep me below the 40% tax bracket so does that mean all i pay is 19% on the company profits?

You're making money on expenses that you live on (plus the £5k a year). Interesting. So what do you do after two years...

[Maxamus]

A glimmer of understanding at last....



You're making money on expenses that you live on (plus the £5k a year). Interesting. So what do you do after two years...

1. Im on £10k minimum salary not £5k

2. Im a highways engineer so i do alot of travelling and site work which incurs alot of mileage. Printing A1 A0 drawings isnt cheap nor is a licence of AutoCAD and Bentley MXRoad.

3. Up in the North East contractors are not on the same rates as people down south.

Hence why after expenses and salary i am under the 40% tax bracket.