Thresshold above which dividends un-economical?

[richy]

Hi

Just wondering if there isa threshold above which dividends are uneconomical? I know the Employer NI drops from 12->1% at some point.

currently I get:

7,500 PAYE
45,000 net dividends

buy2let profit, around 4k (I don't have exact figure with me to check)

Thanks for any info, rich

[stek]

Hi

Just wondering if there isa threshold above which dividends are uneconomical? I know the Employer NI drops from 12->1% at some point.

currently I get:

7,500 PAYE
45,000 net dividends

buy2let profit, around 4k (I don't have exact figure with me to check)

Thanks for any info, rich

What did your Accountant say?

[Waldorf]

It depends what you mean as uneconomical, as far as I am aware, dividends are the most efficient method to take money from your company, but obviously the tax rates go up over about £43K, when you pay 25% of the net dividend, and if you can take £150K, then the tax increases to about 36%.

Perhaps this will help ? http://www.nixonwilliams.com/images/...ax%20Guide.pdf

[Wanderer]

There is a great calculator here. Plug in your numbers and see for yourself. Only you can decide what is "economical".

[richy]

It depends what you mean as uneconomical, as far as I am aware, dividends are the most efficient method to take money from your company, but obviously the tax rates go up over about £43K, when you pay 25% of the net dividend, and if you can take £150K, then the tax increases to about 36%.

Perhaps this will help ? http://www.nixonwilliams.com/images/...ax%20Guide.pdf

Thanks for the link. only bring in around 55k on invoices I was thinking if should bump xxK from divs, on to PAYE, above 43k to increase take-home percentage. Doesn't seem to be beneficial though, so I'll stick to current arrangements and 7.5k paye.

Cheers rich

[richy]

There is a great calculator here. Plug in your numbers and see for yourself. Only you can decide what is "economical".

Great link! I played around with the figures, increasing paye from 7.5k upwards reduced take-home percentage from 76% - 74%. So I'll stick with my current arrangements.

cheers again, rich

[centurian]

If "tax" was just income tax, then it makes virtually no difference what level of dividends you pay, as many of the thresholds are aligned, so the difference in tax is about 1%.

The major difference is the amount of NI paid.

Consider another option - why not retain more profits in your company, especially once you hit the (effective) 40% band. That way if you are benched, you can use this to pay divs at effectively 21% of gross if it falls in a different year.

[richy]

If "tax" was just income tax, then it makes virtually no difference what level of dividends you pay, as many of the thresholds are aligned, so the difference in tax is about 1%.

The major difference is the amount of NI paid.

Consider another option - why not retain more profits in your company, especially once you hit the (effective) 40% band. That way if you are benched, you can use this to pay divs at effectively 21% of gross if it falls in a different year.

That sounds good. I've been keeping some back.

been lucky not had any benching since started contracting.. 4.5yrs without a gap! god.

[escapeUK]

That sounds good. I've been keeping some back.

been lucky not had any benching since started contracting.. 4.5yrs without a gap! god.

This is what I have been doing. I dont need the money enough to pay a big wad of it to the government for them to waste. I consider it my own NI fund, as they wouldnt give me a penny if I was out of work.

[Ignis Fatuus]

Hi

Just wondering if there is a threshold above which dividends are uneconomical? I know the Employer NI drops from 12->1% at some point.

It does not. Employer contributions are 13.8% without any upper limit.