Reply to: Salary/Dividends Tax threshold

[EvilWeevil]

(36,000 + 5,435 - 11,128) x 0.9 = 27,276


QB.

(34,800 + 6,035 - 11,128) x 0.9 = 26,736.30

[Ruprect]

Isn't the allowance 6035 ish due to the chancellor's 2.7 bil bribe to the crewe and nantwich electorate? Or was that for 07-08?

[QwertyBerty]

Therefore a salary or taxable income of £11,128 as a director is:

36,000 + 5,435 - 11,128 x 0.9 = 27,276

(36,000 + 5,435 - 11,128) x 0.9 = 27,276


QB.

[MidasBooks]

Rakesh,

For 08-09 the 40% tax threshold is 36,000 +
The 32.5% tax band on dividens is also 36,000 +
and the tax free amount is £5,435

To work out how much Div to pay yourself, before the extra 22.5% is charged, is simple

Higher tax band Plus your tax free amount minus your Salary and all other taxable income then multiply by 0.9 = tax free div

Therefore a salary or taxable income of £11,128 as a director is:

36,000 + 5,435 - 11,128 x 0.9 = 27,276 max div then 22.5% tax on additional Dividends

£27,276 is the actual Dividend paid and the Tax Credit on the divided will be £3,031 so no extra tax is charged on the tax return

[too_many_details]

Back to the original calculation....

Hi,

just to double check my figures:

The maximum dividends I can actually take out to remain a basic rate tax payer for 2008/2009 when my salary is £11127.96 pa:

Max dividend = (41435 - 11127.96)*0.9 = £27276.34.

So if i pay myself £27,270 I should be just under the threshold?

Thanks

Rakesh

[simmoz]

Hi
Previously it was 1 share each of a different type. Via a Management company.
I then went solo and got myself an accountant who advised me to split the company into 100 shares and divide them 60/40. Which is what I have done.

It might well be a bit dodgy I suppose but I cant see how this would get picked up as it would look fine on the Tax return. Only an investigation might then questions be asked??

[ASB]

Just get here to sign a full/partial waiver. Do one your self too. You can then get dividends to anybody you like in any amount you like.

Waivers are a bit of a red rag to HMRC in terms of S660 but given the current state of legislation you may feel it's worth it.

[Archangel]

Ok I have a similar scenario myself. I have employed my wife as an administrator - she has no other income, and am paying her 5k and up until a few weeks ago our Div split was 85/15.

I changed this to 60/40 once I had heard about the arctic systems case.

However I am now on the verge of the higher tax rate, so what I wanted to know is if it is possible to increase my wife's Dividend payments to 100% until year end to balance the div split to circa 60/40 for the whole tax year?

Thanks in advance

So you keep transferring shares between you? or do you have 2 class of share? If its the latter then just pay divvies to that class of share for the rest of the year. (this lookds really dodgy to me by the way)

(I am not an Accountant, lawyer etc)

[simmoz]

Ok I have a similar scenario myself. I have employed my wife as an administrator - she has no other income, and am paying her 5k and up until a few weeks ago our Div split was 85/15.

I changed this to 60/40 once I had heard about the arctic systems case.

However I am now on the verge of the higher tax rate, so what I wanted to know is if it is possible to increase my wife's Dividend payments to 100% until year end to balance the div split to circa 60/40 for the whole tax year?

Thanks in advance

[ASB]

What I do is to conform to the S660a settlements legislation and let her dividend to be taxed on me

Thats terribly magnanimous of you. But why? Given the result of the Arctic case I would have thought that anybody paying divis to a spouse would be wanting to ensure they used all of the basic rate band.

[oraclesmith]

This will sound like a REALLY newbie question, but the whole point of paying a spouse salary/divvies is to utilise their tax allowances, right?
Am I right in thinking that there's no net gain in paying my wife salary/divs if she's a high-earner, or have I missed some other advantage of this?

That is correct, but you must pay dividends according to your share issue. ie. if you wife and you owns a share each and you declare a dividend on £10k per share, then you must both receive £10k. She could waive the dividend, but this would be a red flag to the Revenue.

What I do is to conform to the S660a settlements legislation and let her dividend to be taxed on me - because she does not actually contribute to the business. This way she keeps a share, but it does limit the amount that can be paid in divi's before hitting the higher rate tax level.

[r0bly0ns]

You get credited for NI purposes at a threshold that is about five hundred pounds per year below the level at which you start paying tax and NI, so there is no advantage to paying more. (I think you pay tax and NI on amounts over £100 a week, but are credited for working if your salary is £87 per week.)

I recently a similar conversation with my accountant as my wife is about to start doing some part time work for the company.
He advised to pay her at least £100 per week to ensure her NI contributions are up to the level to give her a pension.

He also mentioned to make sure we are not underpaying her for NMW.

[IR35 Avoider]

IIRC I was advised to pay a little more than that just to take her into the bracket of paying some NI so her contributions ("stamp"?) were maintained. Or summit. Can't remember now. Ex wifey is long gone! Does this ring a bell with anyone else?

You get credited for NI purposes at a threshold that is about five hundred pounds per year below the level at which you start paying tax and NI, so there is no advantage to paying more. (I think you pay tax and NI on amounts over £100 a week, but are credited for working if your salary is £87 per week.)

[THEPUMA]

This will sound like a REALLY newbie question, but the whole point of paying a spouse salary/divvies is to utilise their tax allowances, right?
Am I right in thinking that there's no net gain in paying my wife salary/divs if she's a high-earner, or have I missed some other advantage of this?

Generally that's right. I could conjure up some obscure circumstances where it is still worthwhile. The only normal circumstances I can think of would be if you were incurring substantial childcare costs it may be worthwhile paying her in childcare vouchers.

Also, theoretically if she is not a director, you would need to pay her NMW for the work that she does (if any).

[Cheshire Cat]

This will sound like a REALLY newbie question, but the whole point of paying a spouse salary/divvies is to utilise their tax allowances, right?
Am I right in thinking that there's no net gain in paying my wife salary/divs if she's a high-earner, or have I missed some other advantage of this?