Do I have this dividends thing worked out?

Do I have this dividends thing worked out?

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Extra 300 Driver

Original Poster:

5,281 posts

246 months

Wednesday 20th June 2012
quotequote all
So I can take a salary of £8150, or my personal allowance and a dividend of £34,350 taxed at 10% but with a tax credit of 10%.

Eric Mc

122,023 posts

265 months

Wednesday 20th June 2012
quotequote all
What are you trying to achieve - a Nil amount of tax and NI to pay?

If so, for 2012/13, you can pay yourself a salary up to the NI threshold which is £7,480 (£144 per week).

If your TOTAL gross income for the year remains at £42,475 or below, you will stay below the Higher Rate Tax threshold.

In order to achieve this, you could -

Pay a salary of £7,480 (no PAYE or NI to pay)

Pay a GROSS dividend of £34,995. This equates to an actual cash dividend amount drawn from the company of £31,495.

Because your income levels remain below the higher rate tax threshold, HMRC will not ask you to pay ANY Income Tax on the £31,495 dividend received.

Extra 300 Driver

Original Poster:

5,281 posts

246 months

Wednesday 20th June 2012
quotequote all
Eric Mc said:
Pay a GROSS dividend of £34,995. This equates to an actual cash dividend amount drawn from the company of £31,495.

Because your income levels remain below the higher rate tax threshold, HMRC will not ask you to pay ANY Income Tax on the £31,495 dividend received.
Why the difference between the two, sorry for being thick!

The business has done well over the past year and I need to think about getting funds out of the business. I draw a small salary through our PAYE but pay no TAX and little NI on it.Obviously the business is going to have to pay corp tax on profits but I want to reduce my tax to a low as possible. Of course I will discuss this with my bean counter but I was just interested in a heads up!

sumo69

2,164 posts

220 months

Wednesday 20th June 2012
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The NIC threshold is lower than that for income tax - another non-simplication of our tax system.

Any dividends that make you a higher rate taxpayer (up to gross income of £150k) attract an effective rate of 25p in the £, though you will loose the benefit of any personal allowances at a rate of £1 for every £2 of gross income once your total income exceeds £100k making an effective tax rate of 60% between £100k and £116210!!

David

Eric Mc

122,023 posts

265 months

Wednesday 20th June 2012
quotequote all
Extra 300 Driver said:
Why the difference between the two, sorry for being thick!

The business has done well over the past year and I need to think about getting funds out of the business. I draw a small salary through our PAYE but pay no TAX and little NI on it.Obviously the business is going to have to pay corp tax on profits but I want to reduce my tax to a low as possible. Of course I will discuss this with my bean counter but I was just interested in a heads up!
I hope your "bean counter" is more valuable to you than one who counts beans.

Simpo Two

85,420 posts

265 months

Thursday 21st June 2012
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"bean planner" would be more appropriate smile

Eric Mc

122,023 posts

265 months

Thursday 21st June 2012
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I don't even like beans - apart from baked beans.

bobbylondonuk

2,199 posts

190 months

Thursday 21st June 2012
quotequote all
Extra 300 Driver said:
Eric Mc said:
Pay a GROSS dividend of £34,995. This equates to an actual cash dividend amount drawn from the company of £31,495.

Because your income levels remain below the higher rate tax threshold, HMRC will not ask you to pay ANY Income Tax on the £31,495 dividend received.
Why the difference between the two, sorry for being thick!

The business has done well over the past year and I need to think about getting funds out of the business. I draw a small salary through our PAYE but pay no TAX and little NI on it.Obviously the business is going to have to pay corp tax on profits but I want to reduce my tax to a low as possible. Of course I will discuss this with my bean counter but I was just interested in a heads up!
34995 is the gross amount you can draw without paying higher rate tax. Due to a tax credit of 10% being applied to you, you can withdraw 90% of the amount...31495.5 and it is assumed you have paid the dividend tax. That is why the difference. You dont have to pay 10% you just withdraw 90% and show the self assessment as 100% - 10% credit. Hope that beings it to laymans terms!

Eric Mc

122,023 posts

265 months

Thursday 21st June 2012
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The 10% tax that is shown as having been "deducted" from the Gross Value of the dividend, is never actually paid to HMRC. It is refered to as "Notional Tax".

And even though it is calculated at 10%, it is "deemed" to have settled the taxpayer's 20% tax liability on the dividend.

This scheme was dreamt up by Ed Balls and Gordon Brown back in 1998, possibly after a few too many glasses of a malt whisky.

bobbylondonuk

2,199 posts

190 months

Thursday 21st June 2012
quotequote all
Eric Mc said:
The 10% tax that is shown as having been "deducted" from the Gross Value of the dividend, is never actually paid to HMRC. It is refered to as "Notional Tax".

And even though it is calculated at 10%, it is "deemed" to have settled the taxpayer's 20% tax liability on the dividend.

This scheme was dreamt up by Ed Balls and Gordon Brown back in 1998, possibly after a few too many glasses of a malt whisky.
Just like a lot of other crap that we have to face!