How much do you have to earn to pay more tax?
Discussion
Are you talking earnings as a standard employee, if so then yes. However if working for yourself (saw your other thread) then it becomes a whole lot more interesting and complicated. Set yourself up as a Ltd company and as a director you can draw a substantial chunk as a dividend which effectively limits the tax to the 19% corporation tax. Higher setup/admin costs as a Ltd however so you would need to speak to an accountant and go through the figures to work out what would be best.
Eric Mc said:
The 19% tax on dividends is being abolished in April.
Bugger really, does this mean they will be taxed as income? This would mean becoming a limited company might not have been the greatest move. At least as a partnership I could run a nice thirsty car through the books without it being a benefit in kind.
From 1 April 2004 to 31 March 2006, any dividends paid to shareholders attracted a Corporation Tax (NOT Income Tax) charge of 19%. This is irrespective as to what profits the company actually made. For example, if a company had a taxable profit of £10,000 or less it would normally not have paid any Corporation Tax at all. If, however, a dividend of (say) £5,000 was paid out of the non-taxable £10,000 profit, Corporation Tax of £950.00 was due (£5,000 @19%).
From 1 April 2006, the 19% CT on the dividend is abolished as is the Profits of £10,000 or less Zero rate Corporation Tax band.
Income Tax rates applicable to dividends have not been affected by any of the above shenanigans.
Personally, nobody pays Income Tax on dividends unless their personal income from all sources during the tax year pushes them into the higher tax bracket. However, even though the higher rate of Income Tax is 40%, the rate of tax applicable to dividends that fall into the higher tax rate is actually 32.5%. And if you are wondering if this sounds like lunacy - you are correct. Gordon Brown was obviously on the Scotch the night he dreamt that one up.
>> Edited by Eric Mc on Monday 9th January 22:42
From 1 April 2006, the 19% CT on the dividend is abolished as is the Profits of £10,000 or less Zero rate Corporation Tax band.
Income Tax rates applicable to dividends have not been affected by any of the above shenanigans.
Personally, nobody pays Income Tax on dividends unless their personal income from all sources during the tax year pushes them into the higher tax bracket. However, even though the higher rate of Income Tax is 40%, the rate of tax applicable to dividends that fall into the higher tax rate is actually 32.5%. And if you are wondering if this sounds like lunacy - you are correct. Gordon Brown was obviously on the Scotch the night he dreamt that one up.
>> Edited by Eric Mc on Monday 9th January 22:42
Eric Mc said:
From 1 April 2004 to 31 March 2006, any dividends paid to shareholders attracted a Corporation Tax (NOT Income Tax) charge of 19%. This is irrespective as to what profits the company actually made. For example, if a company had a taxable profit of £10,000 or less it would normally not have paid any Corporation Tax at all. If, however, a dividend of (say) £5,000 was paid out of the non-taxable £10,000 profit, Corporation Tax of £950.00 was due (£5,000 @19%).
From 1 April 2006, the 19% CT on the dividend is abolished as is the Profits of £10,000 or less Zero rate Corporation Tax band.
Income Tax rates applicable to dividends have not been affected by any of the above shenanigans.
>> Edited by Eric Mc on Monday 9th January 22:37
Eric. Dividends (obviously) are only paid to shareholders. Under what criteria would the above apply, compared to the 32.5% thing?
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