Reply to: I know its been asked before but optimum Dividends payment frequency / amount

[aceboy]

I pay mine quarterly, April, July, Oct, Jan.

+1

[Sally BFCA]

This annoys me so much. I understand where you are coming from but still annoys me. How does you deciding to pay yourself a monthly dividend in any way shape or form make you look like you are an employee. Just because monthly is easy and useful hence why companies pay their permies this way. It is just stupid. Comparing permie monthly pay and contract dividends monthly DOES NOT mean the contractor is hidden permie. It is just apples and pears. Just stupid.... <sigh> rant over...

And I agree with you, but the P A Holdings case in 2009 was proved that dividends were not a return on investment but were in fact disguised remuneration.

[northernladuk]

HMRC have recently been rumbling about disguised remuneration, after all, it is an easy target.

Ideally, the less frequent the dividends, the better. It is also advisable to pay them separately from salary and on differing days with differing amounts. If HMRC see that the same amount is drawn on a regular basis, it may draw their attention into investigating further.

This annoys me so much. I understand where you are coming from but still annoys me. How does you deciding to pay yourself a monthly dividend in any way shape or form make you look like you are an employee. Just because monthly is easy and useful hence why companies pay their permies this way. It is just stupid. Comparing permie monthly pay and contract dividends monthly DOES NOT mean the contractor is hidden permie. It is just apples and pears. Just stupid.... <sigh> rant over...

[Scrag Meister]

I pay mine quarterly, April, July, Oct, Jan.

[Sally BFCA]

You can pay dividends once a year, once a day, just on months with 31 days, or on rainy days for no other reason than you want to cheer yourself up (I've done that before).

Makes no difference. Do whatever suits your personal finances best.

HMRC have recently been rumbling about disguised remuneration, after all, it is an easy target.

Ideally, the less frequent the dividends, the better. It is also advisable to pay them separately from salary and on differing days with differing amounts. If HMRC see that the same amount is drawn on a regular basis, it may draw their attention into investigating further.

As to the original question, the amount to draw in a lump sum should be in consideration of whether your allowances for 2009/10 at the lower tax band were utilised. You can earn £37,400 plus your personal allowance of £6,475 paying the lower rate of tax. Anything above that amount paid as a dividend will result in a further 22.5% tax due.

[MrC]

given the general advice that there are concerns about HRMC I suggest the next priority is to get the money out ASAP and into an interest paying account as soon as you can. Business saving rates dont compete with personal ones.

I really dont see why spending too much too soon is an issue. WE all have to be pretty responsible in the work that we do. Why not make the maximum div payment at the start of the year straight into a personal savings account and then set up a monthly standing order from there into your current account. All you have to do then is not touch the savings account. Simples.

[lje]

I pay myself a salary of £15k. Combined with my hubby's money it means that we can live comfortably. Then I pay myself an annual dividend.

I know I pay extra tax that way but it fits the way that I live and makes life much easier.

[GreenerGrass]

There can't be many contractors starting out who can afford to take dividends only once a year. I shifted from monthly to quarterly once I had enough in reserve.

[ASB]

because I pay myself £12k wages per annum.

Out of simple interest. Why 12k? Your choices are yours of course, but by doing this you are in fact handing over about 1000 more than strictly necessary.

[eliquant]

As others have said, take them whenever you want. I tend to take two big dividends within a month of each other after the start of the new financial year for no reason other than my bank won't let me transfer large amounts in one go despite me raising the limit a few years ago which obviously never got processed correctly and I can't be bothered to ask them again.

Why only 28k or 30k? Isn't the 40% tax band at £37,*** + personal tax allowance of £6,*** or so = £43,000 before paying 40% tax?

because I pay myself £12k wages per annum.

[norrahe]

I pay mine monthly and my accountant has never advised against it.

[SuperZ]

As others have said, take them whenever you want. I tend to take two big dividends within a month of each other after the start of the new financial year for no reason other than my bank won't let me transfer large amounts in one go despite me raising the limit a few years ago which obviously never got processed correctly and I can't be bothered to ask them again.

Why only 28k or 30k? Isn't the 40% tax band at £37,*** + personal tax allowance of £6,*** or so = £43,000 before paying 40% tax?

[Sockpuppet]

As above when ever the hell you want.

Personally I do 3 dividends a year of £10k becuase I like round numbers and that plus some salary keeps me nicely in the lower tax threashold.

[MarillionFan]

I just go with, oh look I have profit in the business. Think I might take a dividend!

Always tended to work out quarterly though to correspond with my VAT returns.

[Gonzo]

Sort of grey advice above, what I don't want to happen is someone saying 'nah that's NOT really a dividend payment its a BONUS or a WAGE !' - I guess the WRONG way to do it is to pay yourself a dividend - same amount on the same end of the month day then it could be interpreted as a wage by Hector (!) - or is that a load of Cods Wallop ???!?

The idea that HMRC could reinterpret regular dividends for regular amounts as salary is something that seems to exist in the contractor mindset, hell, even I have thought it was the case.

I am sure I have seen one accountant on here post that it is cods wallop. The directors of your company can declare dividends as often as they like provided there is profit in the company to cover them.

Either way, HMRC would be investigating your company down to the level of bank statements and dividend minutes before they found out how frequently you were paying them so the dividends would probably be the least of your worries at that point.

One big annual dividend is probably the best but it takes a lot of discipline on your part to make it last the whole year. I only managed to survive on quarterly dividends.