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Dividends for 2016-17

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    Dividends for 2016-17

    According to this article:

    Dividend tax (rules 2016/17 on)

    it states the following:

    "2016/17 example: the dividend allowance is within your basic rate tax band

    If you are a basic rate taxpayer, and you receive all your taxable income in dividends you will be up to £2,025 worse off.

    The basic rate tax threshold for 2016/17 is £43,000 (personal allowance of £11,000, plus basic rate tax band of £32,000)

    If a dividend of £32,000 is received it is taxable as follows, breaking it down into the different "slices":

    The first £5,000 - covered by your dividend allowance

    The next £27,000 (the remainder of your basic rate band) - taxed at the new 7.5% = £2,025 tax due."

    Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

    Thanks

    #2
    Originally posted by smileyface View Post
    Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

    You would have £8060 of Salary at 0% tax
    Then £2940 of Dividends at 0% tax
    Then another £5000 of Dividends at 0% tax
    Then the remaining £27,000 at 7.5% dividend tax.

    The difference, therefore, in paying £8060 salary + £34940 dividends compared to £11000 salary + £32000 are a) the Employer and Employee NICs on the £2940 extra salary or b) Corporation Tax at 20% on an extra £2940 (given you get CT relief on salary, but not dividends).

    What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.
    Taking a break from contracting

    Comment


      #3
      Yes.

      Comment


        #4
        Woo-hoo.. A numbers thread we haven't ballsed up multiple times!!!
        'CUK forum personality of 2011 - Winner - Yes really!!!!

        Comment


          #5
          Originally posted by chopper View Post
          You would have £8060 of Salary at 0% tax
          Then £2940 of Dividends at 0% tax
          Then another £5000 of Dividends at 0% tax
          Then the remaining £27,000 at 7.5% dividend tax.

          The difference, therefore, in paying £8060 salary + £34940 dividends compared to £11000 salary + £32000 are a) the Employer and Employee NICs on the £2940 extra salary or b) Corporation Tax at 20% on an extra £2940 (given you get CT relief on salary, but not dividends).

          What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.
          Thanks for your detailed explanation.

          Comment


            #6
            What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.
            Well CT is 20% and NICs are (13.8 + 2)% (I think, without looking it all up) so it look like salary is more efficient. But ICBW...
            Blog? What blog...?

            Comment


              #7
              Originally posted by northernladuk View Post
              Woo-hoo.. A numbers thread we haven't ballsed up multiple times!!!
              92nd time, sorry 94th time lucky (ballsed up there)...
              ______________________
              Don't get mad...get even...

              Comment


                #8
                Originally posted by smileyface View Post
                According to this article:

                Dividend tax (rules 2016/17 on)

                it states the following:

                "2016/17 example: the dividend allowance is within your basic rate tax band

                If you are a basic rate taxpayer, and you receive all your taxable income in dividends you will be up to £2,025 worse off.

                The basic rate tax threshold for 2016/17 is £43,000 (personal allowance of £11,000, plus basic rate tax band of £32,000)

                If a dividend of £32,000 is received it is taxable as follows, breaking it down into the different "slices":

                The first £5,000 - covered by your dividend allowance

                The next £27,000 (the remainder of your basic rate band) - taxed at the new 7.5% = £2,025 tax due."

                Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

                Thanks
                The steer I was given was to draw a much larger dividend in fy 2015/16 and pay the additional income tax on that, rather than leave in the company and draw out as dividends on fy 2016/17 when I would then have to pay the dividend tax. This way overall I would be paying less tax.
                ______________________
                Don't get mad...get even...

                Comment


                  #9
                  Originally posted by malvolio View Post
                  Well CT is 20% and NICs are (13.8 + 2)% (I think, without looking it all up) so it look like salary is more efficient. But ICBW...
                  So I bothered to look it up now.

                  NICs on £11k Salary would be £353 for employee NICs, plus £399 employer NICs. (unless you get employment allowance).
                  Corp Tax on that £2940 would be £588.

                  So I guess the answer is if you qualify for Employment Allowance, then take £11k salary. If not, then take £8060 salary.
                  Taking a break from contracting

                  Comment


                    #10
                    Originally posted by chopper View Post
                    So I bothered to look it up now.

                    NICs on £11k Salary would be £353 for employee NICs, plus £399 employer NICs. (unless you get employment allowance).
                    Corp Tax on that £2940 would be £588.

                    So I guess the answer is if you qualify for Employment Allowance, then take £11k salary. If not, then take £8060 salary.
                    I thought all the basic guides out there said that when advising options for 2016?
                    Last edited by Contractor UK; 28 March 2017, 11:45.
                    'CUK forum personality of 2011 - Winner - Yes really!!!!

                    Comment

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