Reply to: Income Shifting

[dude69]

How does that work then, who is dictating to you as the company director how much you can pay your staff for a job well done? I'm in the same position, I pay my girlfriend a salary for doing the company accounts etc, which funnily enough is about £5.5k per year... why should we have to justify to anyone including the government how much we pay for this service?

Because the government says so.

It's all within the rules

Not if they change the rules though.

[chris79]

I believe it must be commensurate. Pay to much and they will argue it is not in the interest of the company and disallow it. I was even advised paying HI £5K per year for book keeping was too much. In the end I worked out the exact time taken for her work and paid her the going rate (taken from job sites)

How does that work then, who is dictating to you as the company director how much you can pay your staff for a job well done? I'm in the same position, I pay my girlfriend a salary for doing the company accounts etc, which funnily enough is about £5.5k per year... why should we have to justify to anyone including the government how much we pay for this service? It's all within the rules and is done on PAYE.

[tim123]

[QUOTE=dude69;315418]

The rules don't exist yet, .

Yep that's what I was going to say.

My comment was a prediction of what will be allowed in future, not how it is now.

Silent investors who invest money in a company will be allowed to receive a 'normal' return on that money without triggering HMRC's wrath They will not be allowed a windfall return.

tim

[dude69]

[QUOTE=DaveB;315408]

Just out of interest is there any legislation that defines what are "acceptable" dividend payouts? Or does Hector get to make it up as he geoes along?

The rules don't exist yet, and would only apply for tax-dodging spouses owning shares in your company.

[DaveB]

[QUOTE=tim123;315404]

What happens where the spouse provided the startup capital of the company? Surely there is entitlement to dividends there.
QUOTE]

Yes, but at 5, 6 or 7% per annum,

Not at 400% per annum.

tim

Just out of interest is there any legislation that defines what are "acceptable" dividend payouts? Or does Hector get to make it up as he geoes along?

[tim123]

[QUOTE=Sysman;314931]What happens where the spouse provided the startup capital of the company? Surely there is entitlement to dividends there.
QUOTE]

Yes, but at 5, 6 or 7% per annum,

Not at 400% per annum.

tim

[Hiram King Of Tyre]

Isn't the 40% band going up to £43k in 2009 too?

[Bluebird]

I pay myself £10k wages, on which I pay about £1800 tax.
I can do the same for the wife - no problem for Hector there as she's paying full whack PAYE.

I'm looking at reimbursement of expenses of about £500 pcm = £6k per year.

So, for £6 - there is no tax.
for £20 we pay £3.6k [ averagess out @ 18% ]
for a dividend of £26k - we will have paid 20% CT [ org amount = £31.2k - tax = £5.2k]

So I can take home about £52k, having paid about £8.2k in tax.

Which works out at about 86% return providing I only take out £4.3k per month.

Any more than this, and we'll have to pay 20% CT, then 25% IT, so to take out an extra 10k I'll have to have earned £14.1k

So to take home £62k [ £5.1k pcm ] is still about 80%.

Which is still way better than any permie job.

Looking at this I must have made a mistake with the figures - come on what have I missed out ?

[moorfield]

so if you only take out £36k from the business each year - you are ok ?

If I can continue to expense say £5k then £36k should cover the mortgage interest-only and household costs. Surplus is currently filling the mortgage offset and isas so that would have to stay in the ltd co. Not ideal but an option I would consider.
A lot depends on personal circumstances obviously.

[Bluebird]

so if you only take out £36k from the business each year - you are ok ?

[moorfield]

Retained Profit

Not ideal but ...

If you can afford to live off lower divis then could profit be retained in the ltd co and deferred / drawn at a later time, either when on the bench or early retirement ?

[dude69]

Isn't the first 36k tax free [ ie it's @ 10% but then they credit you that back ]

Anything over the £36k gets taxed at 32.5% [ but you still get the 10% back ] so it's taxed as personal income of 22.5% - all this on top of the 20% corp tax you'ce already paid.

It's taxed at 25% of the dividend received. Company pays £10,000 into your account, you pay £2,500. This is above higher rate.

The first 36k is indeed tax-free (or fully basic rate tax imputed), that was my point - so you lose 36k worth of allowance from the wife, which YOU woul have to pay 25% of in tax if you get the dividend instead (obviously given that you've already claimed a 36k dividend)

That's 36k grossed-up, which is actually £32,400 received, because of the 10% tax credit thing.....

[rsingh]

So is it worth contracting any more? discuss.

Definitely. I'll still get a higher rate as a contractor than I ever did as a permie. Plus there will be no office politics and I can bugger off to another assignment once the six month boredom hits. The holidays are good as well

[Ruprect]

So is it worth contracting any more? discuss.

[Bluebird]

Why have you used 25% for the £36k - surely if you are making £72k then the £36k lower rate is already used so it should be 40% if you take on the extra £36k from your spouse

Isn't the first 36k tax free [ ie it's @ 10% but then they credit you that back ]

Anything over the £36k gets taxed at 32.5% [ but you still get the 10% back ] so it's taxed as personal income of 22.5% - all this on top of the 20% corp tax you'ce already paid.