Reply to: Amount of dividend versus profits

[northernladuk]

thanks for the detailed breakdown....

I got it now. Took a little while.

Ficko!!!

[Lance]

This bit is wrong.

thanks for the detailed breakdown....

I got it now. Took a little while.

[rascal]

The dividend attracts 7.5% tax on £2860, whioch is £214.50.

This bit is wrong.

[Lance]

The £2k dividend allowance applies to the first £2k of dividends that aren't already covered by the personal allowance. That means you could potentially have up to £14.5k of tax-free dividends if you have no other income at all.

Yes. Indeed.

So in my example how have i got it wrong? Or have I, as I suspect, got it right?
Purely academic interest....

[TheCyclingProgrammer]

I'm not sure how I'm not correct. Dividend tax free allowance only applies to the first £2k of dividend, and as far as I'm aware is immaterial to your personal allowance.... But then again I use an accountant so I don't care too much...

The £2k dividend allowance applies to the first £2k of dividends that aren't already covered by the personal allowance. That means you could potentially have up to £14.5k of tax-free dividends if you have no other income at all.

[Lance]

This is not correct. He still £8.5k left of his personal allowance, in addition to the £2k dividend allowance.
That would leave £8860 in his pocket, but still worse off than doing it the other way.

I'm not sure how I'm not correct. Dividend tax free allowance only applies to the first £2k of dividend, and as far as I'm aware is immaterial to your personal allowance.... But then again I use an accountant so I don't care too much...

[WordIsBond]

Did you pay CT last year? If so, there's a way you can get some of it back.

If not, do you think you might pay CT next year? If so, there's a way you can reduce it.

But it depends on what you do between now and 6 April, and that action will not have any effect on your tax for this year.

The CT you save WILL force you to learn something. If you are currently out of contract and have loads of time anyway, spend the time and save the money. If you are working and earning money, just pay someone else (an accountant) for the knowledge.

Pretty simple, really. But you've not even done the research before coming on here and asking questions and you aren't likely to get much respect for your questions as a result. If you want to save accountancy fees then SPEND THE TIME to do it right.

You aren't even asking the right questions here.....

[rascal]

Some sums. Nice and simple ones
£10k in company. Take £4k as salary. No tax to pay on any of that.
The £6k that's left attracts £1,140 CT. So you now have £4860 you can take as dividends.
The dividend attracts 7.5% tax on £2860, whioch is £214.50.
Leaving £8645.50 in your pocket.

This is not correct. He still £8.5k left of his personal allowance, in addition to the £2k dividend allowance.
That would leave £8860 in his pocket, but still worse off than doing it the other way.

[Lance]

Ok, please humour me - tell me why you think this is going to cost me? My combined salary and dividend will still be below the personal allowance level (plus the 2k tax free dividend). The only difference is I'm taking less salary than usual. So it's roughly 4k salary and 10k dividend, rather than 8k salary and 6k dividend.

the dividend you seem really keen to take will have had 19% CT paid before you can take it.

Some sums. Nice and simple ones
£10k in company. Take £4k as salary. No tax to pay on any of that.
The £6k that's left attracts £1,140 CT. So you now have £4860 you can take as dividends.
The dividend attracts 7.5% tax on £2860, whioch is £214.50.
Leaving £8645.50 in your pocket.

Or....
£10k in company. Take £8k as salary. Still no tax.
£2k profit attracts £380 CT. That leaves £1620 for dividends.
You now have £9620 in your pocket.

That's around about £1,000 more in your pocket by knowing what you're doing.

[LondonManc]

Accountants don't have secret or hard to find knowledge. All tax code/legislation is publicly and readily available online. Most of us can find our own answer to our questions and yet we still all have an accountant.

What does it say about yourself that you can't even be bothered (or maybe lack the skill) to even look up the most basic accounting principles which are clearly outlined in HMRC public guidance
Running a limited company: Taking money out of a limited company - GOV.UK and yet you still are trying to do your own accounting?

You need to stop. You're going to wind up with back tax, fines and potentially a fraud charge if you continue down this path.

Or at best losing out on thousands of pounds by making the wrong, albeit legal, decisions.

[jayn200]

Accountants don't have secret or hard to find knowledge. All tax code/legislation is publicly and readily available online. Most of us can find our own answer to our questions and yet we still all have an accountant.

What does it say about yourself that you can't even be bothered (or maybe lack the skill) to even look up the most basic accounting principles which are clearly outlined in HMRC public guidance
Running a limited company: Taking money out of a limited company - GOV.UK and yet you still are trying to do your own accounting?

You need to stop. You're going to wind up with back tax, fines and potentially a fraud charge if you continue down this path.

[LondonManc]

Ok, thanks. But for this year in question, there were very little earnings, so the CT will be minimal anyway.

The only point I was checking was that there was no immediate tax implications from taking the higher dividend (but still below the personal allowance).

If you don't show a profit, you don't make Corp Tax payments and can offset losses against future periods.

Basic reading is here: Work out and claim relief from Corporation Tax trading losses - GOV.UK

[Paralytic]

Ok, thanks. But for this year in question, there were very little earnings, so the CT will be minimal anyway.

Speak to your accountant about carry back/carry forward options on any CT losses. Oh, wait, you don't have one.

Alternatively, you can always ask random people on the internet and hope they give you the right answer.

The only point I was checking was that there was no immediate tax implications from taking the higher dividend (but still below the personal allowance).

No there should not be, but this is not advice, and you have to make your own decision.

[WTFH]

Ok, thanks. But for this year in question, there were very little earnings, so the CT will be minimal anyway.

The only point I was checking was that there was no immediate tax implications from taking the higher dividend (but still below the personal allowance).

Why not take it as salary?
And you've still not mentioned if you actually have the funds to pay all your bills - VAT, CT, etc.

[GezHells]

It's not an absolute cost to you, but an opportunity cost. ie. you could have extracted more £s from the company efficiently, paying no tax. Instead, you PSC will pay CT on a larger amount, and you'll pay 7.5% (or 32.5%) if you later extract those funds via dividends.

Ok, thanks. But for this year in question, there were very little earnings, so the CT will be minimal anyway.

The only point I was checking was that there was no immediate tax implications from taking the higher dividend (but still below the personal allowance).