I often read that one of the benefits of being outside IR35 and therefore being able to take dividends is that the higher rate tax on dividends is lower than for salaries. While the higher rate for dividends is indeed 32.5%, I don't think that there is actually a saving.
Suppose I have already earned enough salary to take me into the higher rate bracket. Now suppose I have company earnings of £20k. First I pay 20% corporation tax = £4k leaving £16k. I take this as a £16k net dividend, so my gross dividend is 16 * 10/9 = £17,777.77. The higher rate tax on this is 32.5%, but I get a 10% tax credit so the tax is 22.5% = £4k. Along with the corporation tax my total tax is £8k = 40%. This is the same rate as for an ordinary salary.
Conclusion: the only benefit of being outside IR35 is the NI savings. Can someone tell me if I have understood correctly? Thanks v. much in advance.
Suppose I have already earned enough salary to take me into the higher rate bracket. Now suppose I have company earnings of £20k. First I pay 20% corporation tax = £4k leaving £16k. I take this as a £16k net dividend, so my gross dividend is 16 * 10/9 = £17,777.77. The higher rate tax on this is 32.5%, but I get a 10% tax credit so the tax is 22.5% = £4k. Along with the corporation tax my total tax is £8k = 40%. This is the same rate as for an ordinary salary.
Conclusion: the only benefit of being outside IR35 is the NI savings. Can someone tell me if I have understood correctly? Thanks v. much in advance.
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