Optimizing dividends

[ASB]

No, the logistics of paying the wages are not the problem, since I have online banking.

But my question is whether I NEED to pay myself wages over these months (I am not working)?

Is it ok for me to just stop paying myself in DEC-2007...and then, if I want to, draw a dividend in MAY-2008??

I guess the complete but single word answer was not enough.

You do not need to pay yourself any wages at any point unless you are a worker. If you are a director without a service contract you are not a worker.

Dividends are paid by any company out of profits, be these current year or retained from previous years. So provided you have not paid it all out you are fine.

e.g. t/over to April 2008 52,000, salary 1,000, other expenses 1,000, gross profit 50,000. CT 10,000 net profit 40,000. Dividends paid 25,000. Retained funds 15,000. You still have 15k of dirtibutable reserves in the following tax year [to which current year profits can be added or current year losses taken off].

[TheFaQQer]

I guess the complete but single word answer was not enough.

You do not need to pay yourself any wages at any point unless you are a worker. If you are a director without a service contract you are not a worker.

Dividends are paid by any company out of profits, be these current year or retained from previous years. So provided you have not paid it all out you are fine.

e.g. t/over to April 2008 52,000, salary 1,000, other expenses 1,000, gross profit 50,000. CT 10,000 net profit 40,000. Dividends paid 25,000. Retained funds 15,000. You still have 15k of dirtibutable reserves in the following tax year [to which current year profits can be added or current year losses taken off].

I like the sound of dirtibutable reserves - where can I get some?

[Bluebird]

I like the sound of dirtibutable reserves - where can I get some?

Tesco sell everything

[ASB]

I like the sound of dirtibutable reserves - where can I get some?

Stay married to the CoSec......

[dude69]

IIRC, as a director, there's no need to keep paying yourself a regular wage if it suits you not to.

Only snag is that HMRC will be expecting a monthly payment of tax/NI, so you might have to send in some "nil slips" for those months to tell them you're not earning.

NI treatment of directors is different. They have an annual reckoning. So it doesn't really matter.

However, you would always want to pay a salary, working or not, as it's tax-free money up to the £5k(ish) annual personal allowance, whereas if you leave it in the company it will be taxed at 20% Corporation Tax before you can pay it out as a dividend.

[trigger]

Thanks to everyone for their help and superfast replies.

This has really helped my understanding of the whole dividend/wages/expenses scenario.

This forum ROCKS!

[Mustang]

IIRC, as a director, there's no need to keep paying yourself a regular wage if it suits you not to.

Only snag is that HMRC will be expecting a monthly payment of tax/NI, so you might have to send in some "nil slips" for those months to tell them you're not earning.

Absolutely "spot on" - although I am not an accountant!!

It is essential to send in the nil returns but my accountant does that for me. This basic fact is why a Director is treated as a special case in regards to Employment contracts, minimum wage, NI calcs and tax calcs.

[Mustang]

Ok just thought of something else...

Does this mean that I will need to pay myself wages (every month) for the whole twelve months of any given financial year?

For example, given my hypothetical scenario, since I will stop working in December, do I need to keep paying myself wages, every month, until I hit the £5200 threshold?

With all due resect, I think you need to read up in some way on the whole Director/PAYE/Dividend scenario and then ask your accountant when he/she comes back any questions you have. I can recommend the HMRC workshops but if you don't fill in the holes inyour knowledge you could shoot yourself in your foot.

* Waits for Malvolio to add his 2 cents about "thinking like a busines", etc *

[trigger]

With all due resect, I think you need to read up in some way on the whole Director/PAYE/Dividend scenario and then ask your accountant when he/she comes back any questions you have. I can recommend the HMRC workshops but if you don't fill in the holes inyour knowledge you could shoot yourself in your foot.

Firstly, didn't you read my last thread above yours?

Also, you're the second person in this thread who has done this ->

"With all due respect", yes I do find it quite irritating.

Don't you think the whole point of this forum is so that members can ask silly (if not a bit stupid) questions? I'm not sure about you, but I've never hesitated to ask a stupid question, at work or otherwise. I've always found its the best way I learn.

I hope you understand some of us are learning all this stuff as we go along you know.

...and for the record (with thanks for the productive input of dude69) I have decided I am better off paying myself £450 wages in the winter months I will not be working and away skiing.