Tax on Dividends

[Bluebird]

How ill I know what / how to pay ?

I've changed from umbrella to Ltd Co half-way through the tax year ?

[Nixon Williams]

Prepare your tax return as soon as you get it or get your accountant to do it for you.

[PAG]

Is it ok if you do not pay yourself ANY salary from the LTD company and just dividends, because you have paid salary via Umbrella earlier in the year (within year 06/07) ??

[PAG]

The HR tax is due on any dividends that are in excess of the £38,335 limit (06/07), so if the total income is £39335, ie £1000 over the limit, the extra tax is 22.5% of £1000 ie £225

Note: The HR tax on dividends is 32.5% less the 10% tax credit so 22.5%

Alan

Alan,

I understand the tax of £225.
but is it
1. paid by the company (as corporation tax)
2. or company pays 19% CT and then we pay 22.5% on top from the personal account ??

[minstrel]

Alan,

I understand the tax of £225.
but is it
1. paid by the company (as corporation tax)
2. or company pays 19% CT and then we pay 22.5% on top from the personal account ??

It's option 2 - you pay the additional 22.5% from your personal account.

[PAG]

Is it ok if you do not pay yourself ANY salary from the LTD company and just dividends, because you have paid salary via Umbrella earlier in the year (within year 06/07) ??

[Nixon Williams]

Alan,

I understand the tax of £225.
but is it
1. paid by the company (as corporation tax)
2. or company pays 19% CT and then we pay 22.5% on top from the personal account ??

The £225 is a personal liability and so paid from personal funds.

The amount of Corporation tax is no longer affected by what dividends are paid. CT is a tax on profits, dividends are declared from post tax profits.

Alan

[Nixon Williams]

Is it ok if you do not pay yourself ANY salary from the LTD company and just dividends, because you have paid salary via Umbrella earlier in the year (within year 06/07) ??

You could, but generally we would advise that you pay at least a salary inline with the National Minimum Wage rate, ie £5.35 per hour.

Alan

[ASB]

You could, but generally we would advise that you pay at least a salary inline with the National Minimum Wage rate, ie £5.35 per hour.

Alan

Alan,

Out of interest why do you recommend that?

I don't believe there is an absolute requirement for it for most contractors (given they tend to be directors and have no contract of employment I don't think NMW applies).

I can fully accept "it will attract less attention" as reason enough but wondered if there were more specific reasons. Personally I never bothered paying NMW when I was contracting, if I resume I wouldn't intend to - but you answer could easily change my view

[edwardandtubs]

You have to take account of the GROSS salary and GROSS dividends (plus any other income you might have).

The gross dividend is the net + the 10% tax credit. (Divide the net dividend by 0.9 to get the gross amount).

Alan

Sorry to hijack this thread, but I've a similar question regarding GROSS salary.

From April 06 to August 06 I worked as a permanent member of staff and was paid through PAYE and earned around 17k (gross). I'm now a contractor paying myself minimum wage and the rest in dividends.

Does the salary that I earned back when I was a permie, count towards the total GROSS Salary when calculating dividend payments?