Take Higher Threshold Dividend Versus Director's Loan

[stek]

Take Higher Threshold Dividend Versus Director's Loan

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

31488 divs surely?

[northernladuk]

Does anyone know how common this is , and whether this does work out any cheaper in the long run than paying the 30% dividend tax on higher earnings?

RTB

How can taking a loan out that has to be repaid be cheaper than taking the money out which stays out?

Wish people would ask their accountants how to run their finances and not other contractors in the office.

[jamesbrown]

31488 divs surely?

Net, yes. It isn't clear if SandyD understands that important difference.....

[northernladuk]

Net, yes. It isn't clear if SandyD understands that important difference.....

Do we need a vote on that?

[SandyD]

Net, yes. It isn't clear if SandyD understands that important difference.....

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

[northernladuk]

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

You know you are legally responsible for your finances don't you? You have to sign off what he does at the end of it all? You should be sitting down and speaking to him about all this, it is what you pay him for and he knows your accounts, we don't.

I don't see the relevance between working on a banking project and your companys accounts.

[SandyD]

You know you are legally responsible for your finances don't you? You have to sign off what he does at the end of it all? You should be sitting down and speaking to him about all this, it is what you pay him for and he knows your accounts, we don't.

I don't see the relevance between working on a banking project and your companys accounts.

Yes I know and I sign it, he/ me are not doing anything illegal or irresponsible ... the question I asked was relating to a more efficient way of reducing my personal tax, nothing to do with legality of the accounts

Thanks again Martin

NLUK Am not ashamed to ask a question if I didn't know the answer, if that bothers you then that's your problem you <snip>

[jamesbrown]

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

It's quite straightforward. You can take up to a certain amount (the higher rate bracket) without paying additional tax. When computing the dividend you can take to achieve that, you need to use the gross dividend. Likewise, if you were receiving interest from a bank account, you would use the gross interest to determine if you were pushed into the higher rate bracket. The net dividend is the amount you actually take out of the company. The difference between the two in your scenario is: gross dividend = net dividend / 0.9, i.e. the net dividend paid is 90% of the gross dividend that is taxable. Thus, if you extracted £34,987 from the company as the net dividend, additional tax would be due on a portion of that because you would have confused the gross dividend with the net dividend (and probably f**cked up the dividend voucher as well ). The dividend voucher must show the gross and net amounts.

[Nixon Williams]

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

As has been mentioned, please note that the £34,987 in Martin's example is the GROSS dividend amount, the net dividend (the amount declared and actually paid) would be £31,488