Reply to: Dividends and Taxation

[ASB]

The last couple of years I've just taken all dividends!

In which case you have paid about 1500 pa. Ct that was unnecessary and also lost 2 years pension credit. Depending upon age and ni cont record it might be worth considering voluntary contributions for these years.

[ASB]

You could take the salary as a lump sum with no NIC or paye, if you took it in the last month of the tax year, my accountant told me I could do that and have nothing deducted.

Correct, provided you're a director. This is because it is calculated on a cumulative basis. In effect this means you could take 600 in M1, or 1200 in M2 etc.

This was to prevent paying annually and going over reducing thresholds, thus reducing overall bill.

[Waldorf]

Thanks - can you just take the 7068 as a lump sum & avoid operating a payroll? or do you have to submit certain forms for the salary to hmrc? The last couple of years I've just taken all dividends!

You could take the salary as a lump sum with no NIC or paye, if you took it in the last month of the tax year, my accountant told me I could do that and have nothing deducted.

[malvolio]

Thanks - can you just take the 7068 as a lump sum & avoid operating a payroll? or do you have to submit certain forms for the salary to hmrc? The last couple of years I've just taken all dividends!

AIUI it doesn't matter how or when you take the money out, but if it is to be treated as salary you have to be registered for PAYE with the Revenue. Which means you have to run a payroll of some kind.

[Clare@InTouch]

Thanks - can you just take the 7068 as a lump sum & avoid operating a payroll? or do you have to submit certain forms for the salary to hmrc? The last couple of years I've just taken all dividends!

You'll need a PAYE scheme set up, so you'll have to file nil PAYE returns each quarter and a P35 each year. You can file nil returns each quarter here: HM Revenue & Customs: No PAYE/NICs payment due

Plus potentially a P11D, although getting a dispensation in place will prevent most of the admin on that one.

The £7,068 is the annual figure, and if paid in one lump sum then NI would be due (as anything over the weekly limit incurs NI). You could simple pay £589 per month.

It's worth paying as there's no tax or NI due, you get pension credit, plus you get a CT deduction, so it's better than paying wholly dividends for a lot of people.

[KittyCat]

No, there are different NI limits:

Lower earnings limit, primary Class 1 - this is the £5,304, and the minimum you must earn to get NI credit, even though you don't pay any NI

Primary threshold - £139 a week or £7,228 a year, the point where employee NI kicks in

Secondary threshold - £136 or £7,072 a year, the point where employer NI kicks in (when calculating an annual salary it's actually £7,068).

Tax then applies, on a normal tax code, from £7,475.


HM Revenue & Customs: National Insurance Contributions

Thanks - can you just take the 7068 as a lump sum & avoid operating a payroll? or do you have to submit certain forms for the salary to hmrc? The last couple of years I've just taken all dividends!

[Clare@InTouch]

The maximums I listed are from the HMRC site? If I take over 5304 in salary surely I have to pay the NI?

No, there are different NI limits:

Lower earnings limit, primary Class 1 - this is the £5,304, and the minimum you must earn to get NI credit, even though you don't pay any NI

Primary threshold - £139 a week or £7,228 a year, the point where employee NI kicks in

Secondary threshold - £136 or £7,072 a year, the point where employer NI kicks in (when calculating an annual salary it's actually £7,068).

Tax then applies, on a normal tax code, from £7,475.


http://www.hmrc.gov.uk/rates/nic.htm

[KittyCat]

I see!

The maximums I listed are from the HMRC site? If I take over 5304 in salary surely I have to pay the NI?

Should have finished reading the page first - I see - up to & including ST - 136 per week

[KittyCat]

?

£7,068 is the maximum you can take before NI or tax apply, assuming a normal tax code. Paying that level also ensure you get credit for your state pension.

The maximums I listed are from the HMRC site? If I take over 5304 in salary surely I have to pay the NI?

[Clare@InTouch]

Why that amount?

The tax threshold is 7475 & the NI is 5304 - surely its better to take 5304 as salary & avoid NI for employee & employer? & the rest as dividends?

£7,068 is the maximum you can take before NI or tax apply, assuming a normal tax code. Paying that level also ensure you get credit for your state pension.

[KittyCat]

Why £7068?

could

Why that amount?

The tax threshold is 7475 & the NI is 5304 - surely its better to take 5304 as salary & avoid NI for employee & employer? & the rest as dividends?

[Waldorf]

Reading the paper about the tax thresholds for next year, I see that although the personal allowance is to be increased, the higher rate band is to be reduced, so in effect the 40% tax will still be payable on income over £42475 - so effectively a pay freeze for those who only take dividends upto the 40% band.

[Stumped]

thanks

Thanks everyone for your feedback.

St

[prozak]

Also, don't forget those dreaded payments on account!

HMRC will want half of that again on 31st Jan 12 and the other half 31st July 12, so budget for this. Unless of course you don't expect to take such a high earning in the 12/13 tax year, in which case you can reduce with an SA303 claim.

Good point.

It is another of the reasons that I never stray beyond the 40% threshold

[Danielsjdaccountancy]

Also, don't forget those dreaded payments on account!

HMRC will want half of that again on 31st Jan 12 and the other half 31st July 12, so budget for this. Unless of course you don't expect to take such a high earning in the 12/13 tax year, in which case you can reduce with an SA303 claim.