Repayment of Directors Loan in 2.5 Months

[Martin at NixonWilliams]

Well 17K was my last years dividend(2012-2013) , for this year(2013-14) up to 32K income (12K salary + 20K Dividend) I dont have to pay tax. but after 32K its 22.5% hence, (50-17-20 =13K). So 22.5% on 13K is approx 2925.
I am not an accountant, this is what I have understood in few months.

You can take more than £32,000. The basic rate threshold of £32,010 is in addition to your personal allowance of £9,440 - so £41,450 in total.

If you pay a salary of £12,000 then you can take net dividends of £26,505 (£29,450 gross) before paying higher rate tax. This does not take into account any other taxable income you might receive of course.

Out of curiosity, may I ask why you are paying a salary of £12,000?

Martin

[eek]

Well 17K was my last years dividend(2012-2013) , for this year(2013-14) up to 32K income (12K salary + 20K Dividend) I dont have to pay tax. but after 32K its 22.5% hence, (50-17-20 =13K). So 22.5% on 13K is approx 2925.
I am not an accountant, this is what I have understood in few months.

May I suggest you get one then. RAPIDLY

[KickAss]

You can take more than £32,000. The basic rate threshold of £32,010 is in addition to your personal allowance of £9,440 - so £41,450 in total.

If you pay a salary of £12,000 then you can take net dividends of £26,505 (£29,450 gross) before paying higher rate tax. This does not take into account any other taxable income you might receive of course.

Out of curiosity, may I ask why you are paying a salary of £12,000?

Martin

This is set up by my accountant, He said to be more tax efficient, I will pay myself less salary. so the net salary I pay every month to me for this FY is 919.10 with a total salary of £1,005.88 before tax

[Martin at NixonWilliams]

This is set up by my accountant, He said to be more tax efficient, I will pay myself less salary. so the net salary I pay every month to me for this FY is 919.10 with a total salary of £1,005.88 before tax

I see, I assume you have been advised to take this salary because of National Minimum Wage (NMW) regulations?

I do not know your exact circumstances, but if you are a director of the company and there is no written contract of employment in place the NWM regulations do not apply. With this in mind, a lower, even more tax efficient salary might be better for you.

There are other things to consider that could be the reason for paying a higher salary of course.

Martin

[KickAss]

I see, I assume you have been advised to take this salary because of National Minimum Wage (NMW) regulations?

I do not know your exact circumstances, but if you are a director of the company and there is no written contract of employment in place the NWM regulations do not apply. With this in mind, a lower, even more tax efficient salary might be better for you.

There are other things to consider that could be the reason for paying a higher salary of course.

Martin

Thanks Martin
The dividend amount you mentioned is similar to this post on a website

For tax year 2013/14, the basic tax free allowances are set at £9,440, up from £8,105 for the 2012/2013 year. However, the bad news though, is the point at which higher rate tax will apply drops from £34,370 to £32,010.
It won’t take long to spot that the allowance increase is matched exactly by the fall in the basic rate tax band. As a result the most tax efficient combination of salary (£7,696) and dividends (including tax credit) (£34,779) for 2013/2014 remains unchanged from the current year at a total of £42,475.

so if I understand my salary is £12070.56 and for tax year 2013/14 combination of dividend to match £42475 should be £30405.

Does that means, for this FY I can declare £30405 as dividend before touching higher rate tax ?

[Martin at NixonWilliams]

Thanks Martin
The dividend amount you mentioned is similar to this post on a website

For tax year 2013/14, the basic tax free allowances are set at £9,440, up from £8,105 for the 2012/2013 year. However, the bad news though, is the point at which higher rate tax will apply drops from £34,370 to £32,010.
It won’t take long to spot that the allowance increase is matched exactly by the fall in the basic rate tax band. As a result the most tax efficient combination of salary (£7,696) and dividends (including tax credit) (£34,779) for 2013/2014 remains unchanged from the current year at a total of £42,475.

so if I understand my salary is £12070.56 and for tax year 2013/14 combination of dividend to match £42475 should be £30405.

Does that means, for this FY I can declare £30405 as dividend before touching higher rate tax ?

No, the website you read is wrong.

The higher rate threshold was £42,475 for 12/13 (£37,370 + £8,105).

For 13/14 the threshold is £41,450 (£32,010 + £9,440).

Martin

[KickAss]

No, the website you read is wrong.

The higher rate threshold was £42,475 for 12/13 (£37,370 + £8,105).

For 13/14 the threshold is £41,450 (£32,010 + £9,440).

Martin

Thanks Martin

[northernladuk]

I see, I assume you have been advised to take this salary because of National Minimum Wage (NMW) regulations?

I do not know your exact circumstances, but if you are a director of the company and there is no written contract of employment in place the NWM regulations do not apply. With this in mind, a lower, even more tax efficient salary might be better for you.

There are other things to consider that could be the reason for paying a higher salary of course.

Martin

Could it be something to do with him earning a minimum wage for visa or other regulations?

Also a question. You mention 17k from 2012-2013. Have you taken this money out? Or created the dividend paperwork? Am not understanding why dividends from a previous year are still in the bank and being accounted for in a previous tax year? What is the score there then?

[Martin at NixonWilliams]

Could it be something to do with him earning a minimum wage for visa or other regulations?

Possibly, although it's not a requirement I've seen and I doubt many accountants would consider this at the setup stage. The main reasons some of our clients pay a higher salary are:

1. Personal pension contributions - As the relief would be capped at the level of salary paid.

2. IR35 insurance - As some companies state that a minimum salary must be paid, commonly £5k or £10k.

3. Directors with a written contract of employment in place as they are caught by the NMW regulations.

Martin

[northernladuk]

Many Thanks for replying back northernladuk
I applied on Cat D (PSW) where as rules you mentioned are for Cat B.
Apologies, I should have told this on the first place.
For Cat D, this is the point

Out of interest exactly what Visa did you apply for? We don't have a clue about visas so not understanding this CAT business. PSW is a post study working one? Thought they closed those in 2012? Could you explain clearly?