Income shifting - Dividend calc

[Reporter]

Please can someone help me with some basic calculations.
(using income tax rate of 20% up to £34800, 40% above £34800)

For example:

1) If I pay myself dividends of 25K, my total income is £34800, so I keep in the 20% tax bracket, so no further tax to pay. Correct?

2) If I pay myself dividends of 35K, my total income is £44800, so I would need to pay additional tax of 10K@20% (diff between lower and higher rate tax), i.e. 2K. Correct?

3) Income shift: If I pay myself dividends of 25K and my wife dvidends of
10K, I have no further tax to pay. My wife has no other income. What tax would she pay (based on the HM tax personal allowance of £6035)?

4) As 3 above, what difference would it make to my wife if she already earned just over £6035?

Thanks in advance

[BolshieBastard]

Please can someone help me with some basic calculations.
(using income tax rate of 20% up to £34800, 40% above £34800)

For example:

1) If I pay myself dividends of 25K, my total income is £34800, so I keep in the 20% tax bracket, so no further tax to pay. Correct?

2) If I pay myself dividends of 35K, my total income is £44800, so I would need to pay additional tax of 10K@20% (diff between lower and higher rate tax), i.e. 2K. Correct?

3) Income shift: If I pay myself dividends of 25K and my wife dvidends of
10K, I have no further tax to pay. My wife has no other income. What tax would she pay (based on the HM tax personal allowance of £6035)?

4) As 3 above, what difference would it make to my wife if she already earned just over £6035?

Thanks in advance

Havent a clue. Ask your accountant!

[PhilAtBFCA]

Dividend Calc

Hi reporter,

1) Correct
2) Higher Rate Tax starts at £40,835 when you take into account £6035 Personal Tax Allowance. You calculate Higher Rate Tax on your dividends by firstly calculating your Gross Income ( a net dividend of £10,000 is a Gross Income of £11111.11, divide by 90 times by 100 to convert net to gross ). Work out how much is in the Higher Rate Bracket, net the dividend down and divide by 4, that gives you the Higher Rate Tax.
3)None
4)None ( Tax has already been paid on the dividends, like your dividends that are below the Higher Rate Tax Bracket ).

Hope that helps

Phil

PS We have a spreadsheet you can use to forecast all this for the 2008/9 tax year if you would like details PM me, or you can register on our website and download it from the Business Library.

[stphnstevey]

BlevinsFranks - Have registered and just thought I would say I found your webstite useful

Would have prefered the dividend spreadsheet unprotected so I could have customized it - are you able to PM the password?

[PhilAtBFCA]

Comparison Spreadsheet

Hi stphnstevey,

Sorry I cannot PM you the password. But you can customise the spreadsheet to your contract rate, expenses, salary,shareholdings & pension contributions.

Just enter the details in the blue boxes, everything else is protected.

Phil

[Bluebird]

don't forget that you can't just pay whatever dividends you like - they have to be in line with shareholdings, so to pay yourself 25k and your wife 10k, you must hold about 71% of the shares and your wife 29%.

[Solidec]

Higher Rate Tax starts at £40,835 when you take into account £6035 Personal Tax Allowance.

Sure its been reduced when 10p tax fiasco was ammended.

£6035 Personal Allowance (0%)
£6035 to £34600 Basic Rate (20%)
£34600 > Higher Rate (40%)

You can earn 40635 before hitting higher rate tax (before any tax credits and allowances are factored eg married couples and childrens allowances)

[Andy2]

3) Income shift: If I pay myself dividends of 25K and my wife dvidends of
10K, I have no further tax to pay. My wife has no other income. What tax would she pay (based on the HM tax personal allowance of £6035)?

Since your wife is recpient of dividends she will need to file tax return even though no tax is liable in her case.

[PhilAtBFCA]

Tax Returns

Since your wife is recpient of dividends she will need to file tax return even though no tax is liable in her case.

Sorry Andy I disagree, only if the wife owes tax ( Higher rate Tax ) on the dividends will she need to complete a tax return. ( Assumin the wife is not a director of the company ).

Phil

[al_cam]

Would have prefered the dividend spreadsheet unprotected so I could have customized it

If it was created with excel, open it with openoffice & simply turn protection off or vice-versa if created in openoffice. Works a treat.