Reply to: Mitigate Higher Rate Tax Liability

[NorthWestPerm2Contr]

If I were you I would consider getting a warchest together that lasts more than 10 days before embarking on dubious methods of emptying your bank account quicker.

Dont worry about me, I should have at least 6 months warchest by the end of this gig. If I get an extension then that will increase very quickly.

[malev]

I was just using the Dividend Tax Calculator. I believe this means we don't have to pay higher tax rate:

Salary (PAYE) £5615
Dividend £34000
Other Income £0
Tax Code 647L
Tax Year Fiscal Year 2010/11

If you want to run this right to the limit, the last time I worked this out it came to the following:

Salary (PAYE): £5715
Dividend: £34344
Other Income: £0
Tax Code: 647L
Tax Year Fiscal Year: 2010/11

Of course this requires you have enough profit in the company to take the dividends, and I am not an accountant so make sure you double check all figures with yours before making any payments etc.

Tax year 2011/12 changes a bit as the personal allowance goes up, but the higher rate comes down.

[northernladuk]

Currently I am 95% share holder with a relative holding the other 5%. Could I make my wife 50% and give her another 30k of dividends (assuming she would earn around 5-6k in her own line of work)?

If I were you I would consider getting a warchest together that lasts more than 10 days before embarking on dubious methods of emptying your bank account quicker.

[Wanderer]

Currently I am 95% share holder with a relative holding the other 5%. Could I make my wife 50% and give her another 30k of dividends (assuming she would earn around 5-6k in her own line of work)?

Yes. Everyone does it.

[NorthWestPerm2Contr]

My plan would be to split dividend payments and keep both of us below the 40% tax barrier. Everything else can sit in the company bank account until the children hit uni or I have a bench period.

Currently I am 95% share holder with a relative holding the other 5%. Could I make my wife 50% and give her another 30k of dividends (assuming she would earn around 5-6k in her own line of work)?

[eek]

Anybody know how this affect child benefit? i.e. will taking that amount in the coming years (- the drop in threshold) mean if we have kids we won't have child benefit taken away?

My plan would be to split dividend payments and keep both of us below the 40% tax barrier. Everything else can sit in the company bank account until the children hit uni or I have a bench period.

[IR35 Avoider]

You don't get any tax relief on Company contributions though.

This is a strange thing to say. In general company contributions will result in the same or a greater reduction in tax compared to any other course of action that results in the same number of pounds being added to the pension. (Company contributions may get more relief because NI on salary out of which personal contributions may otherwise be paid may be being avoided as well.)

[tbrain]

Either way after reading the thread I am a little worried about the OP's grasp on all this and would hope he is going to get some professional advice. I still think there is a fundamental problem with the whole accountancy thing let alone complex avoidance methods. If he can give himself dividends of 9k a month he would have to command a pretty spectacular rate which, if he has the capability to earn that level of rate, wouldn't be dropping clangers like he has so far. I hope my assumptions are incorrect but don't see the evidence so far.

My accountant is currently looking into this & is getting back to me today with some options. Guess this was just a thread to hopefully validate his findings! On a long month e.g 25 days, a dividend of circa 8.5k is the norm for me...

[NorthWestPerm2Contr]

I was just using the Dividend Tax Calculator. I believe this means we don't have to pay higher tax rate:

Salary (PAYE) £5615
Dividend £34000
Other Income £0
Tax Code 647L
Tax Year Fiscal Year 2010/11

So basically I can withdraw 5615/12 a month salary and 34000/12 in dividends every month and I won't have to pay a penny of tax on my personal side (will pay coorporation tax though).

Is that right? If so I have a good amount to withdraw for this tax year. I would imagine that is a good idea. Anybody know how this affect child benefit? i.e. will taking that amount in the coming years (- the drop in threshold) mean if we have kids we won't have child benefit taken away? Sorry to go slightly off topic here... but it is kind of related as its to do with tax efficiency.

[northernladuk]

That's pretty much how I see it, I have speculated on the benefits (advisability too come to that) of giving my sons some different class shares and declaring the odd special dividend. Mind you I'd have a hard time arguing it wasn't a cynical avoidance technique if challenged by Hector

There was a thread on this where it mentioned you can't give the shares. Wasn't there something about the recipient had to pay for them at a reasonable rate to match income or something so it didn't look like a blatent attempt to avoid tax? Did a search and couldn't find it but as I think Tyke pertains to it isn't just a matter of giving enough shares out to divi your money up the most tax avoiding way.

Either way after reading the thread I am a little worried about the OP's grasp on all this and would hope he is going to get some professional advice. I still think there is a fundamental problem with the whole accountancy thing let alone complex avoidance methods. If he can give himself dividends of 9k a month he would have to command a pretty spectacular rate which, if he has the capability to earn that level of rate, wouldn't be dropping clangers like he has so far. I hope my assumptions are incorrect but don't see the evidence so far.

[TykeMerc]

Maybe you are thinking of a salary paid to a "connected person" where you may need to demonstrate that they actually do some work for the company.

My understanding is that anyone can own shares in a company and receive dividends, they don't have to do anything for the company.

That's pretty much how I see it, I have speculated on the benefits (advisability too come to that) of giving my sons some different class shares and declaring the odd special dividend. Mind you I'd have a hard time arguing it wasn't a cynical avoidance technique if challenged by Hector

[Wanderer]

For unmarried couples, the line is that dividends paid to the second shareholder must represent their role in the business.

Maybe you are thinking of a salary paid to a "connected person" where you may need to demonstrate that they actually do some work for the company.

My understanding is that anyone can own shares in a company and receive dividends, they don't have to do anything for the company.

[Thejacka1]

I completely agree with you guys.

Unfortunately, I imagine that HRMC will have a few things to say about me paying my unmarried other half 40 odd grand a year in order to mitigate HRT...

You can pay straight out of the Company account into a SIPP and you won't get taxed on it, at least until you take it out. I believe the limit you can invest is coming down to £50K next year. You don't get any tax relief on Company contributions though.

It also has the advantage of making the money safe from IR35 investigations. The Govt is making several changes to Pensions savings to make it a lot more attractive and flexible to how it used to be.

If your partner is an employee, you can contribute to a separate SIPP or stakeholder pension from the company as well.

[tbrain]

I completely agree with you guys.

Unfortunately, I imagine that HRMC will have a few things to say about me paying my unmarried other half 40 odd grand a year in order to mitigate HRT...

[Ignis Fatuus]

Administrator, manages the books etc.

I'm a BP shareholder. Should I be managing their books?