Who's taking more dividends this year as a result of the increase by 1.25%?

[Maslins]

Received pretty much the same email from my accountant. Quite puzzling. Assuming you have drawn up to the basic rate, I can't see how taking out at the Higher rate of 32.5% can be of benefit.

I thought it was a cheeky upsell of their 'personal wealth planning' partner.

If you're a higher earning contractor, making profits of (say) £100k post CT each year, it's more important. Yes you could restrict your dividends to circa £40k, so when added to circa £9k salary you fall within basic rate. However you're then only extracting half what you could. Firstly you might simply want more. Secondly, whilst there's no harm in building up a war chest, you'll want that money at some point. Yes MVLs may be an option, and pensions etc...but you might not want to cease contracting for many years and perhaps your pension allowances are already used up.

Where that's the case, sticking to £50k total personal income each year isn't always sensible. Perhaps next year you decide you want/need much more, so you take £150k out. You'd have been far better off taking out £100k the earlier year and £100k again the later year, rather than £50k followed by £150k. Yes you'd pay 32.5% on a lot, but you'd keep your full personal allowance each tax year.

[PerfectStorm]

You're generally better off deferring to the next financial year

Having spent a few things mucking about with directors loans, 0% credit cards before April etc... tax always gets you in the end. Just pay it.

[eek]

Received pretty much the same email from my accountant. Quite puzzling. Assuming you have drawn up to the basic rate, I can't see how taking out at the Higher rate of 32.5% can be of benefit.

I thought it was a cheeky upsell of their 'personal wealth planning' partner.

If you take £70k out this year, the logic goes that it may be easier to take £80k out now and £60k next year.

[BigLadFromBeeston666]

Received pretty much the same email from my accountant. Quite puzzling. Assuming you have drawn up to the basic rate, I can't see how taking out at the Higher rate of 32.5% can be of benefit.

I thought it was a cheeky upsell of their 'personal wealth planning' partner.

[Maslins]

I take whatever it works out to be. Have never been one for ensuring my drawings from the company are 1p lower than whatever limit.

I get that, and clients that want calculations to 1p under the limit can be annoying. Especially when they have lots of little sources of income and are then furious when they realise they had £10 extra received they forgot to mention yet somehow we should've known about to factor into calculations!

However...it does make sense to avoid the situation where you've got your ~£9k salary but are then taking (say) £60k dividends one tax year, then £20k the next. You'd then have a big chunk suffering 32.5% which could've suffered 7.5%.

We do broadly as your accountant's done here, definitely one to consider. Not so much the 1.25% increase as in the grand scheme of things that's neither here nor there. More just that either slightly delaying or rushing through extra dividends can smooth your tax bands across years, ensuring you use the most of lower rates.

[northernladuk]

I take whatever it works out to be. Have never been one for ensuring my drawings from the company are 1p lower than whatever limit.

Same. I don't let the tax tail wag the dog either but I do know my drawings from the company are pretty close. Like a few k either way. I'd certainly be keeping a tighter reign on it if I was regularly going over or by a large amount.

[ladymuck]

I take whatever it works out to be. Have never been one for ensuring my drawings from the company are 1p lower than whatever limit.

[Lance]

Love to know the circumstances that makes it worth paying 32.5% tax now to avoid paying 8.75% rather than 7.5% next year

good point
But I already paid some at 32.5%, and whilst it's nice to have a war chest, it's getting big, pension is maxed, and I don't see an MVL in the near future.

[eek]

Love to know the circumstances that makes it worth paying 32.5% tax now to avoid paying 8.75% rather than 7.5% next year

[Lance]

My accountant has sent this.

Tax Planning
There are several things to consider when working out the tax that may be due on dividends. With the tax year end approaching (5^th April 2022 for the 2021/22 tax year) it can be valuable time invested when looking at the timing of when dividends are paid. For example, if you have un-utilised basic rate allowances remaining in the current tax year, these will not carry over to the next tax year. As such, the timing of the dividend payment can be important, as it could result in the tax due being at the higher rate rather than the basic rate.
In the 2022/23 tax year, with the introduction of the health and social care levy, there will be an increase of tax on dividends, with each tax rate being increased by 1.25%:
7.5% to 8.75%
32.5% to 33.75%
38.1% to 39.35%

With this in mind it may be worth looking at taking additional income in the current tax year at the lower tax rate in some circumstances.

I've already paid more last year so already have a POA bill of double normal, so I've already paid the tax for this year so I might as well. But wonder what the cutover point is for most people (no I haven't asked the accountant yet, or run the numbers yet)?
I think it needs a graph.