How much income to draw this year ?

[teabag]

I previously thought that I should be taking £39825 out of the Ltd company this year - Tax free allowance of £5,225 plus up to the basic rate of 22% is £ 34,600

However my accountant is advising that I take £34,500. A salary of £10,500 plus £24k in dividends.

When I asked him why this should be the case rather he replied;

"There is however a small difference between what I
have advised to take as dividends and the actual higher rate limit, which I
have set aside as a 'buffer' in case you receive any other income during
this tax year"

Why would this be the case ?

[Bluebird]

because you will also have to declare stuff like interest from bank / building society accounts, share dividends you may recieve from companies other than your own...

[VectraMan]

You'd think your accountant should ask you about likely income from savings/other shares before advising you.

Remember the 10% tax credit on dividends. So £24K counts as £26,400 towards the limit. The most you can take as divs (assuming £10,500 salary) is £26,659. I think.

[minstrel]

I reckon your accountant is having a very bad day. What it looks like he has done is attempt to recommend £100 less than the higher rate threshold banding.

This is wrong because:

1. it ignores the £5,225 personal allowance;
2. it ignores the fact that dividends incur a 10% credit so £24k dividends is actually treated as £26,666.66 income (£24k / 0.9)

Also remember that any personal pension contributions you make effectively increase the higher rate threshold so allow you to make a bigger dividend distribution without suffering 40% tax.

Personally, I'd sack my accountant if he gave me this sort of advice and responded with such lame excuse.