Paying salary and dividends question

[Nixon Williams]

You should only consider drawing divis quarterly, and preferably half annually or annually, if at all, and for the right reasons. If you can't do this, then just up your salary so that you can live off your income properly.

There is no basis for this other than an urban myth. Provided you can show that dividends are paid from profits (which we can for our clients) then you can pay dividends monthly.

Alan

[Maxamus]

Once you take out NI/PAYE/Corp Tax/Expenses/Salary the rest would be profit which can be taken is divident.

Doesnt matter when you draw it as divident will always come out of profits.

[Tool]

Panamco,

A salary of 10k is not likely to put yourself out of Hector's radar, as long as you receive significant amount of dividends, because it will all be on your tax return (and you will have to fill one).

Some people here apparently are happy to maximise their tax burden, but the truth is that you have the right to structure your business to minimise your overall tax liability. Just do it legally. Paying yourself a low salary and high dividends is legal.

Regarding your final question, it is more efficient to draw some dividends every year, because it is virtually tax-free as long as your are not a high-rate tax payer.

I am not qualified to tell you that (c) The Lone Gunman

[Tool]

There is no basis for this other than an urban myth. Provided you can show that dividends are paid from profits (which we can for our clients) then you can pay dividends monthly.

I have read somewhere that HMRC could regard this as a salary if it is paid monthly (a bit like a salary, in fact)

[jh0711]

what about the fact that for a company to operate legally it has to be classed as a 'going' concern - if you clear you accounts down to nothing at the end of each year (and therefore report NO yearly profit)
is this not a little bit dodgy???

or does no one really care?

[Nixon Williams]

I have read somewhere that HMRC could regard this as a salary if it is paid monthly (a bit like a salary, in fact)

The fat that you read it somewhere does not make it tax law! There is no basis for this rumour.

Alan

[Nixon Williams]

what about the fact that for a company to operate legally it has to be classed as a 'going' concern - if you clear you accounts down to nothing at the end of each year (and therefore report NO yearly profit)
is this not a little bit dodgy???

or does no one really care?

Nothing illegal or dodgy about paying profits from the company. A going concern relates to if the company can pay its bill as they fall due, any decent accountant will ensure this is the case.

Alan

[Nixon Williams]

Maybe not now, but is this likely to be the case in years to come. I tend to think ahead and just because everything is rosy now with few investigations and even fewer successes that doens't mean that this trend will continue. Also, don't forget, that investigations can be for business activity going back 6 years and the IR can recoup monies from this far back.

The Revenue cannot investigate dividend payments that are legally declared as per the Companies Act. Whilst it is open for Gordon to legilslate in the future there is nothing illegal with monthly dividends.

Alan

[ASB]

I never said that they were. What I did say is that you are more likely to be investigated for any reason if there are some dubious patterns on your business account. My accountant has advised not to claim monthly divis for this reason.

That is common advice.

However it is not likely to increase the risk of an investigation since the fact that monthy dividends have been paid is not available to the tax man. [Ok he could pull the company bank details under order from your bankers and do the maths but in this case you're already under investigation, just don't know it].

[pisces]

Ideally you'd pay £5K per year to maximize your income.

I don't think anybody knows for sure that a lower salary is more likely to trigger an investigation or not. For all we know they pick people out of a hat regardless of what they do. And if you are investigated and you win, then all you're doing by paying a larger salary is wasting money. After all, you're only following the law of the land.

On the other hand, if you lose, it won't matter how you paid yourself, you'll be stung for the full income tax and NI. So all we're doing is speculating that wasting a bit of money on tax means we're more likely to get away with not having to pay more.

If you were investigated and lost, what would happen to the Corporation Tax you would have already paid?