Dividends and Child Benefit

[ParkerTalbot]

If I pay myself the following through my Ltd company:

Salary: £8840
Dividends: £41160
TOTAL: £50000

I'm entitled to claim Child Benefit.

Does the £2K tax free Dividend Allowance count for these purposes?

i.e. could I actually pay a £43160 dividend and still claim full CB and is this optimal?

[ParkerTalbot]

I'm confident you have to declare dividends too, you can't be claiming CB and taking a £100k dividend with an £8k salary for example, I'm just unsure on the £2K tax free dividend allowance.

[Consigliere]

I believe CB is calculated on Adjusted Net Income and thus dividends are included in the calcs, however at £50k total there is no HICBC to pay - so yes you get to keep all of the CB

[ParkerTalbot]

Thanks, it's that 2K dividend allowance I'm curious to know about definitively either way.

[msport123]

ParkerTalbot said:

If I pay myself the following through my Ltd company:

Salary: £8840
Dividends: £41160
TOTAL: £50000

I'm entitled to claim Child Benefit.

Does the £2K tax free Dividend Allowance count for these purposes?

i.e. could I actually pay a £43160 dividend and still claim full CB and is this optimal?

The £2k tax free allowance and the £50k CHB earnings limit are two different things.

The £2k tax allowance is exactly that, no tax on the first £2k of divi income.

If you earn over £50k (gross) you will have to pay a portion of your CHB back up to earnings of £60k. So in your revised example, your total earnings would be £52k and therefore you will have to pay back 20% (I think) of the CHB. The £2k tax free dividend allowance doesn't come into it, your gross earnings are what they are.

[MaxFromage]

And to follow on from the previous poster, if you're at that point and want more cash without paying around 60% tax, you should look at alternatives to salary/divis e.g. an electric car. If you are earning between £50-60K and can't change the amount paid, then consider pension contributions to get the tax and child benefit back. Very tax effective.

[MaxFromage]

And I meant to say if you have the reserves/profits, consider paying/declaring a lot more than £60K total income and then reduce it down in future years. E.g. rather than £60K for 5 years, take £100K for one year and £50K for 4 years. Then you minimise the child benefit lost.