checking div calcs

[Contreras]

Would that mean paying Corporation Tax on the difference between the two salaries though meaning overall more tax to HMRC?

Good question, yes more CT (£353.60 by my reckoning) but lower income tax by the same amount because both are 20%, so no difference in the overall HMRC take. The only effect is shifting the point at which you would hit the high rate band.

[Olly]

I was assuming that the savings would be taxed at 20%.

This is how it works out:

Gross salary:             £5,304.00       £7,072.00
Gross dividend:           £33,520.88      £31,752.88
Gross other income:       £3,650.13       £3,650.13
Total income gross:       £42,475.00      £42,475.00
                                
Tax free allowance:       £7,475.00       £7,475.00
Tax on salary:            £295.83         £649.43
Tax on dividend:          £0.00           £0.00
Tax on other income:      £730.03         £730.03
Total tax:                £1,025.85       £1,379.45
                                
Net salary:               £5,008.18       £6,422.58
Net dividend:             £30,168.79      £28,577.59
Net other income:         £2,920.10       £2,920.10
Total income net:         £38,097.06      £37,920.26
                                
Difference in net income: £176.80

Note that retained profit is reduced by the same amount, i.e. all you've managed to do is extract more income from the company without entering the higher rate band - but that was exactly the OP question I think.

Happy to be corrected if any of this is wrong.

Would that mean paying Corporation Tax on the difference between the two salaries though meaning overall more tax to HMRC?

[Contreras]

I was assuming that the savings would be taxed at 20%.

This is how it works out:

Gross salary:             £5,304.00       £7,072.00
Gross dividend:           £33,520.88      £31,752.88
Gross other income:       £3,650.13       £3,650.13
Total income gross:       £42,475.00      £42,475.00
                                
Tax free allowance:       £7,475.00       £7,475.00
Tax on salary:            £295.83         £649.43
Tax on dividend:          £0.00           £0.00
Tax on other income:      £730.03         £730.03
Total tax:                £1,025.85       £1,379.45
                                
Net salary:               £5,008.18       £6,422.58
Net dividend:             £30,168.79      £28,577.59
Net other income:         £2,920.10       £2,920.10
Total income net:         £38,097.06      £37,920.26
                                
Difference in net income: £176.80

Note that retained profit is reduced by the same amount, i.e. all you've managed to do is extract more income from the company without entering the higher rate band - but that was exactly the OP question I think.

Happy to be corrected if any of this is wrong.

[Clare@InTouch]

There is a 10% tax savings band that means a lower rate on interest as long as your non-savings income (ie not dividends) is below £10,035. Have a read here:

The 10% starting rate for savings income « TaxAid

[Contreras]

how does that work then?

I'm not sure exactly! Perhaps an account could explain it better?

Gross interest from personal savings of £3650.13 and personal allowance of £7475 means you will pay income tax (20%) on any salary above £3824.87. Reducing the salary therefore reduces income tax although it increases corporation tax (also 20%) by an identical amount. Then, if you pay out dividends up to max allowed before higher rate income tax this results in the same total net personal income + company retained profit.

By some wizardry of accounting and the difference between tax on dividends and basic rate income (10% vs. 20%) you end up with an extra 10% of the difference (7072-5034) in pocket before being liable for higher rate income tax. Either that or my spreadsheet is lying to me.

[Olly]

Alternatively, reduce salary to £5,304 and up dividends to £30,168.78 for an extra take home of £177.

how does that work then?

[Contreras]

Alternatively, reduce salary to £5,304 and up dividends to £30,168.78 for an extra take home of £177.

[Clare@InTouch]

Ta very much gorgeous Clare...you are gorgeous aren't you?

Of course :-p

And you're welcome :-)

[Olly]

Ta very much gorgeous Clare...you are gorgeous aren't you?

[Clare@InTouch]

Just used an online calculator and wanted to quickly check all's ok please:

Tax code 747L
Salary from Ltd = 7072 gross
Interest from bank savings = 3650.13 gross
Max dividend to minimise personal tax = 28580

How does that sound pls?

Take the higher rate limit of £35,000 and add on your tax code to give your higher rate limit = £42,475.

Deduct your salary and bank interest to get £31,752.87. Divide by 10 and x 9 to get the maximum net dividend = £28,577.58.

Anything over that amount will result in a tax bill equal to 25% of the excess, so take £29,577.58 and you can expect a tax bill in January next year of £250.

[Waldorf]

Just used an online calculator and wanted to quickly check all's ok please:

Tax code 747L
Salary from Ltd = 7072 gross
Interest from bank savings = 3650.13 gross
Max dividend to minimise personal tax = 28580

How does that sound pls?

I just used this calc and got a similar figure to you, so it sounds ok. Contractor Accountant specialists UK | Accountancy Service for contractors | Interim Managers Accountancy Services UK | Take Home Pay Calculator UK.

The tax rates have been announced for next year, so unless Osborne changes his mind they will be as follows:

2012-13 NIC Rates, 2012-13 Income Tax Rates, Personal Allowance

[northernladuk]

Just used an online calculator and wanted to quickly check all's ok please:

Tax code 747L
Salary from Ltd = 7072 gross
Interest from bank savings = 3650.13 gross
Max dividend to minimise personal tax = 28580

How does that sound pls?

According to my SJD divi planner that leaves you 176.34 to pull out so can treat yourself in your last divi.. This will change in 5 days or so after the budget however.

[Olly]

Just used an online calculator and wanted to quickly check all's ok please:

Tax code 747L
Salary from Ltd = 7072 gross
Interest from bank savings = 3650.13 gross
Max dividend to minimise personal tax = 28580

How does that sound pls?