Discussion
My partner does our accounts and we pay each other a relatively modest wage.
It's enough to be well into the 20% tax bracket, but not near the 40%
I also have a secondary income that takes up most of my personal allowance.
I pay very little NI payments.
Everyone that I speak to tells me that I am doing it wrong and should be paying £670 a month and topping it up with dividends/
I can't really see how this is going to benefit me though, as surely I am going to be paying 20% tax anyway - whether that be at source (corporation tax) or at the end (PAYE)
Am I really doing it all wrong?
It's enough to be well into the 20% tax bracket, but not near the 40%
I also have a secondary income that takes up most of my personal allowance.
I pay very little NI payments.
Everyone that I speak to tells me that I am doing it wrong and should be paying £670 a month and topping it up with dividends/
I can't really see how this is going to benefit me though, as surely I am going to be paying 20% tax anyway - whether that be at source (corporation tax) or at the end (PAYE)
Am I really doing it all wrong?
mel said:
That big boat over there just about to disappear over the horizon, that's your dividend boat that is and it's well and truly sailed come next April.
Still more tax efficient to take small salary + dividends than it is salary alone. Only not as efficient as it has been post next April.For this tax year:
The aim is to use all your personal allowance via PAYE, so if you have some left after the second employment then put the balance through the Ltd. If it's only a few hundred though, I would agree it's probably not worth the hassle.
For next tax year:
You should put through the Ltd up to the NI threshold. This will then only attract 20% income tax and not the additional 7.5% Dividend tax. Note you can have £5000 pa each free of the Dividend tax.
The aim is to use all your personal allowance via PAYE, so if you have some left after the second employment then put the balance through the Ltd. If it's only a few hundred though, I would agree it's probably not worth the hassle.
For next tax year:
You should put through the Ltd up to the NI threshold. This will then only attract 20% income tax and not the additional 7.5% Dividend tax. Note you can have £5000 pa each free of the Dividend tax.
Edited by PurpleMoonlight on Friday 11th December 16:19
chonok said:
I can't really see how this is going to benefit me though, as surely I am going to be paying 20% tax anyway - whether that be at source (corporation tax) or at the end (PAYE)
Don't forget the Employers and Employees NI stealth tax!That's another 20%+ on top of your Income tax...
Shaoxter said:
Don't forget the Employers and Employees NI stealth tax!
That's another 20%+ on top of your Income tax...
So is the only difference then? That I will not have to pay employers PAYE tax?That's another 20%+ on top of your Income tax...
Sorry, just being a layman I am trying to get it clear in my own mind exactly how I would save money, because everyone is telling me that it is more tax efficient (like the comment above) and I just want to understand how/why??
Because the salary is tax deductible in the company and you won't pay tax on it as its within your personal allowance.
For example, say the company has made £20k profit - with salary of £10600, the company pays CT of £9400 @ 20% = £1880 which then allows dividends of £7520 to be paid. You will pay no tax on these sums if they are your only income.
If you don't use salary, the company pays £4k of CT leaving £16k to distribute as dividend.
So you get more income by £2120, being the saving in CT between the 2 scenarios.
Do you use an Accountant?? I cannot believe you haven't had this explained if you do, and if not, you need to use another...cough, cough!!
David
For example, say the company has made £20k profit - with salary of £10600, the company pays CT of £9400 @ 20% = £1880 which then allows dividends of £7520 to be paid. You will pay no tax on these sums if they are your only income.
If you don't use salary, the company pays £4k of CT leaving £16k to distribute as dividend.
So you get more income by £2120, being the saving in CT between the 2 scenarios.
Do you use an Accountant?? I cannot believe you haven't had this explained if you do, and if not, you need to use another...cough, cough!!
David
sumo69 said:
Because the salary is tax deductible in the company and you won't pay tax on it as its within your personal allowance.
For example, say the company has made £20k profit - with salary of £10600, the company pays CT of £9400 @ 20% = £1880 which then allows dividends of £7520 to be paid. You will pay no tax on these sums if they are your only income.
If you don't use salary, the company pays £4k of CT leaving £16k to distribute as dividend.
So you get more income by £2120, being the saving in CT between the 2 scenarios.
Do you use an Accountant?? I cannot believe you haven't had this explained if you do, and if not, you need to use another...cough, cough!!
David
Thanks for that.For example, say the company has made £20k profit - with salary of £10600, the company pays CT of £9400 @ 20% = £1880 which then allows dividends of £7520 to be paid. You will pay no tax on these sums if they are your only income.
If you don't use salary, the company pays £4k of CT leaving £16k to distribute as dividend.
So you get more income by £2120, being the saving in CT between the 2 scenarios.
Do you use an Accountant?? I cannot believe you haven't had this explained if you do, and if not, you need to use another...cough, cough!!
David
No, we don't use an accountant, we do it in house. If using an accountant will save me money then I will certainly consider it though.
As mentioned previously, most of my personal allowance is taken up by a secondary income, so surely that would make a big difference to your example above??
Eric Mc said:
Hope you are ready for the massive changes being introduced by the implementation of FRS102 and or FRS105 and the abolition of FRSSE. I'm an accountant and have just spent three days attending talks on the repercussions on these changes.
Hi mate, any chance of translating this into English for us mere mortals.Thanks.
Us professionals, we're terrible when it comes to acronyms 
For the past ten years or so, accounting governing bodies all over the world have been trying to come up with a set of accounting standards that would be interchangeable no matter what country a business was based in. These standardised "accounting standards" have been formulated into the International Financial Reporting Standard or IFRS.
The IFRS generally applies to larger entities, in particular those which operate in all sorts of different geographical areas - especially the multi-nationals. However, the accounting techniques and standards as stipulated for large entities have now been revised and re-formulated for small and medium sized entities, generally referred to as SMEs (more acronyms).
FRS102, FRS102-1A and FRS105 are the financial reporting standards that will apply to small entities (FRS102/102-1A and for micro entities (FRS105).
The implementation of these new standards will mean that the traditional profit and loss account as prepared for limited companies will contain many alterations on what we have become used to over the past 30 to 40 years. In particular, certain types of finance/borrowing entered into by companies will be placed in different locations in the final accounts and some of the nomenclature will be changing.
Treatment of certain assets, especially intangible assets such as "Goodwill", will also be different.
These changes also have Corporation tax implications and also will have implications for restating figures as they were shown in the previous year's accounts when the older standards still applied.
The UK 2006 Companies Act has been amended where appropriate to incorporate the changes to company accounts and therefore, anyone filing accounts in the next year or so who prepares their company accounts to the old standard for small businesses - the FRSSE (Financial Reporting Standard for Smaller Entities) will, in effect, be filing non-compliant accounts which, if Companies House do their job properly, should be rejected on that basis.
https://www.frc.org.uk/Our-Work/Publications/Accou...
https://www.frc.org.uk/News-and-Events/FRC-Press/P...
For the past ten years or so, accounting governing bodies all over the world have been trying to come up with a set of accounting standards that would be interchangeable no matter what country a business was based in. These standardised "accounting standards" have been formulated into the International Financial Reporting Standard or IFRS.
The IFRS generally applies to larger entities, in particular those which operate in all sorts of different geographical areas - especially the multi-nationals. However, the accounting techniques and standards as stipulated for large entities have now been revised and re-formulated for small and medium sized entities, generally referred to as SMEs (more acronyms).
FRS102, FRS102-1A and FRS105 are the financial reporting standards that will apply to small entities (FRS102/102-1A and for micro entities (FRS105).
The implementation of these new standards will mean that the traditional profit and loss account as prepared for limited companies will contain many alterations on what we have become used to over the past 30 to 40 years. In particular, certain types of finance/borrowing entered into by companies will be placed in different locations in the final accounts and some of the nomenclature will be changing.
Treatment of certain assets, especially intangible assets such as "Goodwill", will also be different.
These changes also have Corporation tax implications and also will have implications for restating figures as they were shown in the previous year's accounts when the older standards still applied.
The UK 2006 Companies Act has been amended where appropriate to incorporate the changes to company accounts and therefore, anyone filing accounts in the next year or so who prepares their company accounts to the old standard for small businesses - the FRSSE (Financial Reporting Standard for Smaller Entities) will, in effect, be filing non-compliant accounts which, if Companies House do their job properly, should be rejected on that basis.
https://www.frc.org.uk/Our-Work/Publications/Accou...
https://www.frc.org.uk/News-and-Events/FRC-Press/P...
chonok said:
Thanks for that.
No, we don't use an accountant, we do it in house. If using an accountant will save me money then I will certainly consider it though.
As mentioned previously, most of my personal allowance is taken up by a secondary income, so surely that would make a big difference to your example above??
OK, thanks Eric.No, we don't use an accountant, we do it in house. If using an accountant will save me money then I will certainly consider it though.
As mentioned previously, most of my personal allowance is taken up by a secondary income, so surely that would make a big difference to your example above??
Back on topic - does anyone have an answer to my question above?
Is the only difference the Employers Tax and NI?
If so, anyone got a link to how this is worked out?
Cheers
The small company accounting requirements change significantly for accounting periods commencing on or after 1 January 2016, so effectively it is 31 December 2016 year ends and later that the "complications" arise.
For medium/large companies the fun starts for year ends 31 December 2015 onwards.
For medium/large companies the fun starts for year ends 31 December 2015 onwards.
s2kjock said:
The small company accounting requirements change significantly for accounting periods commencing on or after 1 January 2016, so effectively it is 31 December 2016 year ends and later that the "complications" arise.
For medium/large companies the fun starts for year ends 31 December 2015 onwards.
All that is indeed true. However, when these accounts are prepared in a year or so's time, the comparative figures for the previous year shown in these accounts have to comply with the new standards as well. That means anyone preparing those accounts over the next few months to the current standards will need to be mindful of the new standards so that they can amend the figures so that they can be disclosed properly as comparatives in the following year's accounts. In fact, early adoption of the new standards is allowed - so, in theory, you could be preparing accounts to the new standards within a few months - if you wanted to.For medium/large companies the fun starts for year ends 31 December 2015 onwards.
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