Handling Dividends

**Gonzo** · 18 June 2007, 18:56

Originally posted by themistry

Hi guys,

a few questions regarding dividends.

1) How often do you take them? Every month, bi-monthly, quarterly etc. I understand they can be taken as and when, but i am intersted in knowing peoples opinions.

2) If I don't intend on leaving money in the company and taking advantage of taper relief after 2 years, would I best best advised to take the full profits out as dividends on a regular basis? Or is there another approach?

3) I understands that once I hit the upper tax threshold, I need to keep approx 25% of the dividend for the self assessment tax return. Is there any other way around this? I.e. putting money directly into a pension scheme.

Thanks for any input here, im sure it would be interesting to many.

Kind regards
TM

1. I take dividends about quarterly although I do adjust the dates if, for example, there is something big that I want to pay for. Dividends can be declared at any time with any frequency, providing there is profit in the company. In practice how confident can you be of the amount of profit in the company on a monthly basis if you are contracting.

2. Another way to take the money out would be PAYE salary but you probably don't want to do that. After winding up the company and taking the money as a capital gain, taking dividends is going to be the most tax efficient way of doing it. Don't forget to leave some money in the company to keep it going through any "bench time".

3. You can reduce your upper rate tax exposure by contributing personally to a pension. That is probably the biggest impact that you can make on it. "Gift aiding" any charity contributions helps a little too (depending on how charitable you are).

As always I am not an accountant or a financial adviser so my advice may not be worth what you have paid for it.

**ASB** · 18 June 2007, 19:28

Re 3.

At the end of year it is entirely possible to do the calculations in advance and have the company make a pension contribution. This of course reduces the profit. If it is large enough it will keep dividends in the standard rate band.

Company contributions are made gross rather than employee which are made net with tax releif. Which is more beneficial depends on attitudes and individual circumstances. It has been discussed with some regularity.

**VectraMan** · 18 June 2007, 20:17

Remember that the allowance is per year, so use it or lose it. No point paying less than the limit and leaving money in the company. Also you don't know what's going to happen down the line. You might pay all your profit as dividends in year 1 and pay 25% ish tax on some of it, only to find yourself out of work for most of year 2. If you'd paid less in year 1 you could have paid the rest tax free in year 2.

**themistry** · 18 June 2007, 20:20

Thanks for the replies guys,

I was considering taking out dividends every 2 months. Why lose the interest. As long as its not deemed to be "dodgy" by the nice fellows at HMRC, then it's fine by me.

At present, my contracts pretty much ensures that I can do this (large compant with a 12 month contract), however after it rolls up, im sure my dividend taking will shrink.

As per keeping some money aside for bench time, do I really need to? Can I simply just stop drawing a salary?

Thanks,
TM

**JKnz** · 4 July 2007, 21:33

What about paying dividends monthly or even fortnightly (assuming there are distributable profits available)?

Is there a risk that these payments will be seen as a salary even if you mark them as dividends and pay them seperately?

Thanks in advance
JK

**Gonzo** · 4 July 2007, 21:52

Originally posted by JKnz

What about paying dividends monthly or even fortnightly (assuming there are distributable profits available)?

Is there a risk that these payments will be seen as a salary even if you mark them as dividends and pay them seperately?

Thanks in advance
JK

Monthly payments being seen as salary is, as far as I am aware, an urban myth. I still have that thought in the back of my mind but a couple of the accountants have said as much on here.

I still pay myself (a small) monthly salary and then the rest as quarterly dividends.

But if you are contracting you need to start thinking of company income and outgoings over much longer periods than one month. There will be months, quarters or even longer when there will be no income but your company will still have some outgoings.

**JKnz** · 4 July 2007, 22:01

Thanks for your response Gonzo

Yep fully aware of the incomings / outgoings situation.

I'm not taking the full amount of distributable earnings either just paying a single dividend each month to top up my weekly salary and address those monthly personal bills eg rent, mortgages etc. Probably only paying out around 50% of what is available which means for periods I am not working and not having incomings I should have sufficent profits to distribute. Hope that all made sense.

I only asked as I have friends who were paying out divs weekly and fortnightly but are now looking at moving to quarterly or half yearly payments to minimise this 'risk' but I'm not sure I could survive of the minimum salary amounts.

Cheers

**max** · 4 July 2007, 23:20

Originally posted by themistry

Thanks for the replies guys,
I was considering taking out dividends every 2 months. Why lose the interest. As long as its not deemed to be "dodgy" by the nice fellows at HMRC, then it's fine by me.

What do you mean "Why lose the interest"?

**2uk** · 5 July 2007, 00:12

Originally posted by max

What do you mean "Why lose the interest"?

Put the money in high interest account.

Handling Dividends