Reply to: Take Higher Threshold Dividend Versus Director's Loan

[Nixon Williams]

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

As has been mentioned, please note that the £34,987 in Martin's example is the GROSS dividend amount, the net dividend (the amount declared and actually paid) would be £31,488

[jamesbrown]

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

It's quite straightforward. You can take up to a certain amount (the higher rate bracket) without paying additional tax. When computing the dividend you can take to achieve that, you need to use the gross dividend. Likewise, if you were receiving interest from a bank account, you would use the gross interest to determine if you were pushed into the higher rate bracket. The net dividend is the amount you actually take out of the company. The difference between the two in your scenario is: gross dividend = net dividend / 0.9, i.e. the net dividend paid is 90% of the gross dividend that is taxable. Thus, if you extracted £34,987 from the company as the net dividend, additional tax would be due on a portion of that because you would have confused the gross dividend with the net dividend (and probably f**cked up the dividend voucher as well ). The dividend voucher must show the gross and net amounts.

[SandyD]

You know you are legally responsible for your finances don't you? You have to sign off what he does at the end of it all? You should be sitting down and speaking to him about all this, it is what you pay him for and he knows your accounts, we don't.

I don't see the relevance between working on a banking project and your companys accounts.

Yes I know and I sign it, he/ me are not doing anything illegal or irresponsible ... the question I asked was relating to a more efficient way of reducing my personal tax, nothing to do with legality of the accounts

Thanks again Martin

NLUK Am not ashamed to ask a question if I didn't know the answer, if that bothers you then that's your problem you <snip>

[northernladuk]

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

You know you are legally responsible for your finances don't you? You have to sign off what he does at the end of it all? You should be sitting down and speaking to him about all this, it is what you pay him for and he knows your accounts, we don't.

I don't see the relevance between working on a banking project and your companys accounts.

[SandyD]

Net, yes. It isn't clear if SandyD understands that important difference.....

Nope but am getting there...

would you believe it I'v been working at finance/banking projects for the last 15 years

But always left it to my accountant, now I am trying to get my head round it... so there..

[northernladuk]

Net, yes. It isn't clear if SandyD understands that important difference.....

Do we need a vote on that?

[jamesbrown]

31488 divs surely?

Net, yes. It isn't clear if SandyD understands that important difference.....

[northernladuk]

Does anyone know how common this is , and whether this does work out any cheaper in the long run than paying the 30% dividend tax on higher earnings?

RTB

How can taking a loan out that has to be repaid be cheaper than taking the money out which stays out?

Wish people would ask their accountants how to run their finances and not other contractors in the office.

[stek]

Take Higher Threshold Dividend Versus Director's Loan

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

31488 divs surely?

[SandyD]

Oh apologies for the OP for hijacking the thread

[SandyD]

Hi SandyD,

No problem at all

Assuming you have no other taxable income such as bank interest, property income etc. then yes, there would be no personal tax due!

Martin

Great, thanks so much for your reply

[Martin at NixonWilliams]

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

Hi SandyD,

No problem at all

Assuming you have no other taxable income such as bank interest, property income etc. then yes, there would be no personal tax due!

Martin

[SandyD]

Hi SandyD,

Unfortunately, it is impossible to say! It depends on the profitability of your company and the mix of salary/dividends that makes up the £42,475.

Let us assume you earn precisely enough profit to pay a combination of salary and dividends up to £42,475, the salary being £7,488 (up to the NI threshold) and the remainder being in dividends. The tax would be as follows:

£46,848 Turnover
(£7,488) Salary
£39,360 Pre-tax profit
(£7,872) Corporation Tax
£31,488 Profit available for dividends

£31,488 in net dividends is £34,987 gross, this plus the salary of £7,488 takes you to £42,475. There is NO tax payable on the salary or the dividends. The only tax payable in this scenario is therefore the £7,872 in Corporation Tax.

It is ever as straightforward as this as there are many other things to consider, namely expenses, additonal turnover from flat rate scheme, spouses allowances if available, previous or other earnings, etc. etc.

I hope this helps.

Martin

Hi Martin, many thanks for the help, am a bit dyslexic when it comes to the accounting parts. So you are saying if I am taking the £7,488 salary (which I am) and then £34,987 divs, assuming no other income/ the usual individual allowance, I would be paying corporation tax of £7,872, but no personal tax on top?

Thanks for you patience

[Martin at NixonWilliams]

Apologies to ask this question but: if I take £42,475 a year as divs i.e. £3539.58 per month, how much company tax do I pay and how much personal tax would I be paying?

Hi SandyD,

Unfortunately, it is impossible to say! It depends on the profitability of your company and the mix of salary/dividends that makes up the £42,475.

Let us assume you earn precisely enough profit to pay a combination of salary and dividends up to £42,475, the salary being £7,488 (up to the NI threshold) and the remainder being in dividends. The tax would be as follows:

£46,848 Turnover
(£7,488) Salary
£39,360 Pre-tax profit
(£7,872) Corporation Tax
£31,488 Profit available for dividends

£31,488 in net dividends is £34,987 gross, this plus the salary of £7,488 takes you to £42,475. There is NO tax payable on the salary or the dividends. The only tax payable in this scenario is therefore the £7,872 in Corporation Tax.

It is ever as straightforward as this as there are many other things to consider, namely expenses, additonal turnover from flat rate scheme, spouses allowances if available, previous or other earnings, etc. etc.

I hope this helps.

Martin

[malvolio]

Apologies to ask this question but: if I take £42,475 a year as divs i.e. £3539.58 per month, how much company tax do I pay and how much personal tax would I be paying?

All that is owed, perhaps?

How the fsck would we know? The question has nothing to do with company tax at all. for personal tax we would need to know your personal allowances an dany other earned income you may have.

Or you could ask your accountant to work it out for you. You do have an accountant... Please tell us you have an accountant...