dividends

[PurpleMoonlight]

worsy said:

Yes you can. In practice though, you would pay salary to the same PA level as this would reduce the CT bill.

Except salary is not Dividends.

[Eric Mc]

HMRC also recognise the principles of "bounty", "income splitting" and "settlements".

I would highly recommend reading up on the law case "Jones V' Garnett" or, as it is sometimes referred to "The Arctic Systems Case".

Even though HMRC actually lost this case, it does indicate what their general attitude to blatant income shifting/splitting by a proprietor is.

http://www.icaew.com/en/library/subject-gateways/t...

Edited to add this link which is pretty good -

http://www.icaew.com/~/media/archive/files/technic...

Edited by Eric Mc on Tuesday 25th November 09:25

[worsy]

PurpleMoonlight said:

worsy said:

Yes you can. In practice though, you would pay salary to the same PA level as this would reduce the CT bill.

Except salary is not Dividends.

I never said it was.

You said you couldn't use PA against dividends. I disagreed.

[PurpleMoonlight]

worsy said:

I never said it was.

You said you couldn't use PA against dividends. I disagreed.

Prove how you use your personal allowance against dividends then.

[Eric Mc]

Of course you can. Your personal tax allowance is usable against your personal taxable income. Dividends count as your personal taxable income.

I think you are being confused by the fact that no one is asked to pay any tax when their dividend and other income combined is not high enough to put them into the higher rate tax band.

However, a person who has dividend and other income exceeding £42,000 or so will definitely make use of their personal tax allowance.

[PurpleMoonlight]

Eric Mc said:

Of course you can. Your personal tax allowance is usable against your personal taxable income. Dividends count as your personal taxable income.

So if I draw a PAYE salary of £5000 and a net Dividend of £4000, HMRC will refund me £444 in tax?

Edited by PurpleMoonlight on Tuesday 25th November 18:43

[worsy]

PurpleMoonlight said:

Eric Mc said:

Of course you can. Your personal tax allowance is usable against your personal taxable income. Dividends count as your personal taxable income.

So if I draw a PAYE salary of £5000 and a net Dividend of £4000, HMRC will refund me £444 in tax?

Edited by PurpleMoonlight on Tuesday 25th November 18:43

Can I claim the tax credit?
You can’t claim the 10% tax credit even if your taxable income for the tax year is less than your personal tax free allowance for the year. This is because income tax hasn’t been deducted from the dividends you have been paid, you have simply been give a tax credit against any income tax due.

From here
http://www.inniaccounts.co.uk/faq/what-are-dividen...

However if you took a PAYE Salary of 0 and a net dividend of 37686 (gross 41873) you would pay no further tax.
You are not a higher rate tax payer (limit is £31,865 + personal allowance of £10,009 = 41874)

[PurpleMoonlight]

If you pay tax (albeit indirectly via corporation tax) on the personal allowance it's not really a personal allowance now is it.

[worsy]

PurpleMoonlight said:

If you pay tax (albeit indirectly via corporation tax) on the personal allowance it's not really a personal allowance now is it.

You are not paying tax. The company is. It's not your money until it is paid in salary or dividends.

[PurpleMoonlight]

worsy said:

You are not paying tax. The company is. It's not your money until it is paid in salary or dividends.

Yes you are, HMRC deem what the company has paid covers your basic rate liability.

[theboss]

PurpleMoonlight said:

worsy said:

You are not paying tax. The company is. It's not your money until it is paid in salary or dividends.

Yes you are, HMRC deem what the company has paid covers your basic rate liability.

The company's corporate tax liability and your personal tax liability are entirely separate and not equivalent. The basic rate of tax on dividends is 10% for a start, not 20%. Why would HMRC deem that one 'covers' the other?

[RYH64E]

theboss said:

PurpleMoonlight said:

worsy said:

You are not paying tax. The company is. It's not your money until it is paid in salary or dividends.

Yes you are, HMRC deem what the company has paid covers your basic rate liability.

The company's corporate tax liability and your personal tax liability are entirely separate and not equivalent. The basic rate of tax on dividends is 10% for a start, not 20%. Why would HMRC deem that one 'covers' the other?

They do. Many business owners pay themselves a low salary (<£10k) and dividends of about £30k without paying any PAYE or NI (or hardly any), and if your wife owns 50% of the shares she can earn the same without paying PAYE or NI. I wouldn't recommend transferring 50% of the shares to a wife or child, I settled on 25% as a fair and safe percentage. And as others have said, much though HMRC would like it to be different, there is no requirement for shareholders to do any work in return for their dividend, it's payment for their stake in the business.

[theboss]

RYH64E said:

theboss said:

PurpleMoonlight said:

worsy said:

You are not paying tax. The company is. It's not your money until it is paid in salary or dividends.

Yes you are, HMRC deem what the company has paid covers your basic rate liability.

The company's corporate tax liability and your personal tax liability are entirely separate and not equivalent. The basic rate of tax on dividends is 10% for a start, not 20%. Why would HMRC deem that one 'covers' the other?

They do. Many business owners pay themselves a low salary (<£10k) and dividends of about £30k without paying any PAYE or NI (or hardly any), and if your wife owns 50% of the shares she can earn the same without paying PAYE or NI. I wouldn't recommend transferring 50% of the shares to a wife or child, I settled on 25% as a fair and safe percentage. And as others have said, much though HMRC would like it to be different, there is no requirement for shareholders to do any work in return for their dividend, it's payment for their stake in the business.

Totally understand that, and am very shamelessly in the £7956 + divs 50/50 camp myself until the day legislation unambiguously prevents it, but the point I was trying to make about business and personal tax liabilities not being the same, still stands.