Reply to: Salary / Dividend Tax

[northernladuk]

For me this tax year, because I've already earned way into the upper tax bracket with my previous (umbrella) contract (and since wife only earns £20K a year in her own job),

it makes a MASSIVE difference in tax if I give my mrs 90% and I get 10%. Plan being then to change it for next tax year.

Accountant is not overkeen on this. Anyone do this? Its not illegal is it?

Why did you not ask him why not rather than ask a bunch of contractors who generally think you are a bit of a waste of time?

[malvolio]

For me this tax year, because I've already earned way into the upper tax bracket with my previous (umbrella) contract (and since wife only earns £20K a year in her own job),

it makes a MASSIVE difference in tax if I give my mrs 90% and I get 10%. Plan being then to change it for next tax year.

Accountant is not overkeen on this. Anyone do this? Its not illegal is it?

Obviously, I appreciate that if the mrs decides to play hide the sausage with the postman it could be problematic!

I get this terrible feeling of deja vu...

Why do you have to ask the same question twice? Why do you think we're still interested in answering it? How much are you offering for us to do your job for you? This thread already spells out quite clearly what the problems are.

1/10, must try harder...

[psychocandy]

For me this tax year, because I've already earned way into the upper tax bracket with my previous (umbrella) contract (and since wife only earns £20K a year in her own job),

it makes a MASSIVE difference in tax if I give my mrs 90% and I get 10%. Plan being then to change it for next tax year.

Accountant is not overkeen on this. Anyone do this? Its not illegal is it?

Obviously, I appreciate that if the mrs decides to play hide the sausage with the postman it could be problematic!

[Lance]

Also depends on the likeliness of a marriage breakdown, passing 90% to essentially the "silent partner" in the business means they get 90% if they decide to wind it up

It’s worse than that.
With 90% they can unilaterally dilute the other shareholders shares further. OPs 10% could become 0.01% really quick if better half decides to.

[oilboil]

Or something...

It depends on your specific circumstances, what individual incomes you both have, what your tax codes are and various other issues around child allowances and the like, what your pension plans are, what your war chest reserves are like and no doubt some others. So it's time to hit the spread sheet.

Also depends on the likeliness of a marriage breakdown, passing 90% to essentially the "silent partner" in the business means they get 90% if they decide to wind it up

[malvolio]

Umm, that's pretty much exactly what I said that I'd assumed. So I do understand it correctly. If it's 50/50 split then the dividends should be split 50/50.

So, the only way to save some tax would be if she owned 90% and whatever dividend pot was issued out, I'd only get 10% of it and pay higher tax on 10% with her paying lower tax on 90%.

Or something...

It depends on your specific circumstances, what individual incomes you both have, what your tax codes are and various other issues around child allowances and the like, what your pension plans are, what your war chest reserves are like and no doubt some others. So it's time to hit the spread sheet.

[JonButterworth]

On the evidence to date, perhaps read some more...

Anyway. Dividends are paid in proportion to shares held - if you had 80% of the issued shares and your wife have the other 20%, you get £8000 and she gets £2000 of a £10k payment. Or any other ratio you fancy.

There are mechanisms for differential dividend payment. Don't go there.

Umm, that's pretty much exactly what I said that I'd assumed. So I do understand it correctly. If it's 50/50 split then the dividends should be split 50/50.

So, the only way to save some tax would be if she owned 90% and whatever dividend pot was issued out, I'd only get 10% of it and pay higher tax on 10% with her paying lower tax on 90%.

[malvolio]

You're right, I know that they would be entitled to dividends. But I remember reading somewhere that dividends need to be equally distributed (if equal share ownership), and thus if I were to own 50% of the company and the wife were to own 50% of the company, I couldn't pay her dividends and not myslef?

On the evidence to date, perhaps read some more...

Anyway. Dividends are paid in proportion to shares held - if you had 80% of the issued shares and your wife have the other 20%, you get £8000 and she gets £2000 of a £10k payment. Or any other ratio you fancy.

There are mechanisms for differential dividend payment. Don't go there.

[JonButterworth]

I think you know the answer to this (or should). Yes, of course they are entitled to dividend distributions, subject to the shares being of an ordinary class with full capital rights. Salary needs more care, subject to their involvement with the business.

You're right, I know that they would be entitled to dividends. But I remember reading somewhere that dividends need to be equally distributed (if equal share ownership), and thus if I were to own 50% of the company and the wife were to own 50% of the company, I couldn't pay her dividends and not myslef?

[jamesbrown]

Of course, I meant if the wife were a director of the company and held 50% of the shares. I think that's a fairly common occurrence when contracting through a ltd company, no?

I think you know the answer to this (or should). Yes, of course they are entitled to dividend distributions, subject to the shares being of an ordinary class with full capital rights. Salary needs more care, subject to their involvement with the business.

[JonButterworth]

Dividends are paid to Shareholders, not Directors (unless they are Shareholders, too).

Of course, I meant if the wife were a director of the company and held 50% of the shares. I think that's a fairly common occurrence when contracting through a ltd company, no?

[Scruff]

Can dividends be paid to one director but not another? Perhaps the wife being a director of the ltd company, and her basic salary elsewhere being in a lower bracket? Could she receive dividends at a lower tax rate?

Dividends are paid to Shareholders, not Directors (unless they are Shareholders, too).

[JonButterworth]

Can dividends be paid to one director but not another? Perhaps the wife being a director of the ltd company, and her basic salary elsewhere being in a lower bracket? Could she receive dividends at a lower tax rate?

[jamesbrown]

And, no, there is no particular magic, other than pension contributions or retaining profits and eventually taking a capital distribution on closure.

[jamesbrown]

Sure, your total income is factored. Dividends are the top slice of income.