Dividends and salary

[andyd123]

Hi


Im an IT contractor and earned around £20k last year ie not a lot. I have been self employed one year

I have salaries paid into a business account last year


I withdraw about £500 a week to live on and pay directly into a personal account to pay my direct debits etc. I have come to sign on mow and the jsa say because I have been earning £2000 a month I am not entitled to any benefits. I told them I dont have any money for food etc and they said go see the council

A contractor friend of mine said I should say I pay myself the minimum wage and say the rest is dividends.


I spoke to my accountant who emailed me this

Hi Andy

If you need £2,000.00 per month to live and pay your bills, that’s what you have to take. This would be taken as PAYE and dividends. The only accounts I have done so far is for the period from December 2012 to April 2013, so I’m not in a position to say anything until we do your next set of accounts.

I have attached the last 3 months payslips. Anything paid into your personal over and above this will be classed as a dividend. I assume you are not paying for any business items from your personal account.

The problem you may have is that you need a whole year to average wages and dividends out, and we have not done a whole year since the last account…"


Ok so I now sitting here without a bean to my name. I was even thinking of closing my business account but as a contractor I can earn so much more. Umbrella companies were deducting something like £200 a week at one time!!

Ok can I appeal the jsa decision? I have payslips.

also what do I need to do to differentiate between dividends and salary. I do have a separate account. Can I arrange it so 2 lots of money goes from my business account? One for salary and on for dividends so it is clear which is clear?

Any advice would be most appreciated.

If your feeling very kind you could even ring me as I do find this business a lot complex...and I dont think I'm particularly thick


Andy

Mod snip <not on the 1st post>

[Clare@InTouch]

If your accountant knows what your average income is then they should be able to advise you a year in advance. For example, next year the tax bands change and (assuming a normal tax code and no other income) you could take a salary of £10,000 and dividends £28,678. This is provided the company has sufficient funds, which the accountant should also be able to help you with based on turnover.

Does your accountant set up wages for you? And run the RTI submissions for you? Or literally just prepare a one-off set of accounts each year?

You may find some software would help you, something like Freeagent, Xero or a bespoke system provided by an accountant.

[malvolio]

Totally lost now, even more lost than the OP is...

The obvious dummy question - what are you earning as a contract that's being paid into your business account (and it's not salary, incidentally)? If it's £2000 and you're only drawing £500,l where is the other £1500?

Don't understand your accountant's answer either, nor the bit about umbrellas...

[LisaContractorUmbrella]

Are you saying that you have taken £500 per month as salary and the rest - £1500 per month - as dividends??

Were you previously with umbrella company and moved to Ltd Co??

With regard to JSA - how did they come to the figure of £2000 per month earnings? Did you provide them with information??

[northernladuk]

Reading all that I think £200 charges a month from an Umbrella so you don't have to worry or understand seems like a bargain tbh.

[DirtyDog]

Im an IT contractor and earned around £20k last year ie not a lot. I have been self employed one year

I withdraw about £500 a month to live on and pay directly into a personal account to pay my direct debits etc. I have come to sign on mow and the jsa say because I have been earning £2000 a month I am not entitle to any benefits.

I don't get it - if all you took was £500 a month, why do the JSA staff think you have taken £2000 a month?

According to the JSA website (link):

To get Jobseeker’s Allowance (JSA) you must:

• be 18 or over but below State Pension age - there are some exceptions if you’re 16 or 17
• not be in full-time education
• be in England, Scotland or Wales
• be able and available for work
• be actively seeking work
• work on average less than 16 hours a week
• go to a JSA interview

Also, to get income-based JSA you (and your partner if you have one):

• must usually work less than 24 hours a week (on average)
• must have £16,000 or less in savings

If that applies, then ask the JSA staff to explain why they think you aren't eligible.

(Sounds like your accounts are going to be a bit of a mess when the accountant comes to do it - what do the payroll records show you received?)

[andyd123]

Reading all that I think £200 charges a month from an Umbrella so you don't have to worry or understand seems like a bargain tbh.

£200 a week

[andyd123]

ok in total I did about 17k last year as didnt work for 5 months

at one point I was earning around £600 a week which was paid directly into my business account. I have a long standing separate personal account which I paid most of this into (they averaged £500 a a week - hence the £2000 a month figure)

so to re iterate I was taking approx £2000 a month at one time from my business account and paying it into my personal account

jsa say this is classed as a salary.

As i say this is fairly new to me. My colleague says i need to specify to them that a certain percentage of that was dividends and not a salary (it was used to pay bills / mortgage etc etc).......that is where my confusion lies.


I need to know how you would differentiate between dividends and salary

you will have to bear with me as this is new and i appreciate you guys have been doing this some time


thanks

ps I am hoping to go back to them with payslips and contest this, hopefully with some advice from yourselves


Andy

[ASB]

Andy,

1) Did you incorporate a limited company of which you are a shareholder?

If no there was certainly no dividends

2) Have you done all the accounts and declared dividends

If no there was certainly no dividends

It does sound very much to me as though your accounts (and by that I mean records) are in a bit of a mess. Possibly non existent.

You say you opened a business account. Was this in the name of "some random company ltd". Or was it in the name of "andy I am doing whatever I want".

It is unclear WHAT was being paid into this "business account". Were you using a brolly? Were they paying you PAYE? In this case that is **your** money anyway.

Was it customers paying invoices ??

Without proper records, or understanding of what you have been doing you have a few problems. How have you declared the income to the taxman for example, I could go on and on, but I won't.

JSA is quite likely the least of your problems.

It sounds to me rather like you do indeed operate a LTD and have simply been drawing funds. Strictly, in the absences of any documentation to the contrary, these will all be loans.

[jamesbrown]

ok in total I did about 17k last year as didnt work for 5 months

at one point I was earning around £600 a week which was paid directly into my business account. I have a long standing separate personal account which I paid most of this into (they averaged £500 a a week - hence the £2000 a month figure)

so to re iterate I was taking approx £2000 a month at one time from my business account and paying it into my personal account

jsa say this is classed as a salary.

As i say this is fairly new to me. My colleague says i need to specify to them that a certain percentage of that was dividends and not a salary (it was used to pay bills / mortgage etc etc).......that is where my confusion lies.


I need to know how you would differentiate between dividends and salary

you will have to bear with me as this is new and i appreciate you guys have been doing this some time


thanks

ps I am hoping to go back to them with payslips and contest this, hopefully with some advice from yourselves


Andy

"I need to know how you would differentiate between dividends and salary"

For real?

So you didn't actually declare any dividends and prepare the declarations and vouchers? You can just reinvent what you did:

Avoid the taxman netting your contractor dividend :: Contractor UK