Dividends and low salary - whats the deal these days?

[northernladuk]

If we were having this conversation in April, then there's an article on the site with some advice about thresholds:
For 2021, what’s the best dividend-salary mix for limited company directors? (contractoruk.com)

Thank you for pointing that out. Shame PC can't put the same level of effort in to finding out how he gets paid for his job.

[psychocandy]

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Sorry NLUK - not interested in what you're saying because you can guarantee its just you trying to run this forum again.....

[psychocandy]

If we were having this conversation in April, then there's an article on the site with some advice about thresholds:
For 2021, what’s the best dividend-salary mix for limited company directors? (contractoruk.com)
They recommended either £8788 or £9500 for 2021/2022. The key point is that this amount is high enough to make it a qualifying year (in terms of eligibility for state pension) but low enough that it's covered by the personal allowance (i.e. no income tax).

However, that assumes that all your income comes from the limited company. If you've been on PAYE for the past 7 months (either inside IR35 or permie) then you'll probably have earned more than that already, in which case you could take a salary of zero and split any other money (after company expenses) between dividends and pension.

Bear in mind that if you've registered your new limited company recently (Oct/Nov) then your company's tax year will be out of sync with your personal tax year (Apr-Apr). So, it might make sense to leave money in the company until next April. Realistically, this is where you need an accountant's advice. Personally, I use Excel to check the figures for my SATR, so I'd make a couple of copies of that worksheet and play with different scenarios.

Also bear in mind that dividends can only be paid out of profit. So, if you have a short contract but you still pay accountants fees and insurance for the whole year, make sure that the profit will cover your dividends. The simplest option would be to wait until the end of your company's year, when you know exactly how much is available, but it depends how soon/frequently you need to take money out.

Last year, some contractors were able to put themselves on furlough, i.e. the government would repay (some of) the salary costs to the limited company. However, this was based on salary, not dividends. So, there's an argument that your salary should be high enough to cover your bills (e.g. rent/mortgage), even if that's less tax efficient.

cheers hobnob

[Noiro]

If you are planning to pay dividends to your wife use different share classes or preferably don't bother and issue a bumper amount in April.

Has anything changed for this eek? I'd appreciate knowing why you posted that - I split my company 50/50 with the mrs, equal shares and both directors, and it works well for us. Curious if there's something I missed...

[eek]

Has anything changed for this eek? I'd appreciate knowing why you posted that - I split my company 50/50 with the mrs, equal shares and both directors, and it works well for us. Curious if there's something I missed...

Nothings changed, the context for the advice is in the first paragraph that you didn’t quote.

but inside IR35 contracts do make income planning far harder than it used to be.

it’s very simple never use dividend waivers to avoid paying a shareholder (that way lies a world of pain and a very easy case for HMRC to win).

[Noiro]

Nothings changed, the context for the advice is in the first paragraph that you didn’t quote.

but inside IR35 contracts do make income planning far harder than it used to be.

it’s very simple never use dividend waivers to avoid paying a shareholder (that way lies a world of pain and a very easy case for HMRC to win).

Ah - gotcha cheers. I misread that as two separate points. Yes easy and safe when you keep it simple and always pay equal dividends. No share classes, no waivers.

Total pain when mixing umbrella income in the mix for sure.