Discussion
I know I'm being a bit dim but I'm yet to get a coherent answer from my accountant on my personal tax liability for the end of my first years trading.
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
I,m running my own car what other perks come into the equation
Cheers
Steve
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
I,m running my own car what other perks come into the equation
Cheers
Steve
Edited by s,one on Wednesday 19th November 21:34
[quote=s,one]I know I'm being a bit dim but I'm yet to get a coherent answer from my accountant on my personal tax liability for the end of my first years trading.
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
[/quote]
Isn't paying yourself dividends over 12mths during the first years trading somewhat dodgy, to say the least?
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
[/quote]
Isn't paying yourself dividends over 12mths during the first years trading somewhat dodgy, to say the least?
Deva Link said:
[quote=s,one]I know I'm being a bit dim but I'm yet to get a coherent answer from my accountant on my personal tax liability for the end of my first years trading.
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
Isn't paying yourself dividends over 12mths during the first years trading somewhat dodgy, to say the least?So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
Deva Link said:
[quote=s,one]I know I'm being a bit dim but I'm yet to get a coherent answer from my accountant on my personal tax liability for the end of my first years trading.
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
Isn't paying yourself dividends over 12mths during the first years trading somewhat dodgy, to say the least?So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
the company may not have sufficient profits or reserves to enable a proper dividend to be paid. If the dividends turn out to have been excessive, the company and its directors could end up in trouble.
the Revenue do not always like to see dividends being paid out too frequently i.e. weekly or monthly as it makes it obvious that the "dividends" are really a substitute for "wages". They have the power to order that the dividends be reclassified as salary and the correct tax and NI calculated.
Edited by Eric Mc on Thursday 20th November 08:32
Eric Mc said:
Deva Link said:
[quote=s,one]I know I'm being a bit dim but I'm yet to get a coherent answer from my accountant on my personal tax liability for the end of my first years trading.
So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
Isn't paying yourself dividends over 12mths during the first years trading somewhat dodgy, to say the least?So lets say I pay myself a nominal wage of £900 a month (nett) and then go on to pay myself another 50k nett in dividends over the 12 month period. What tax and NI bill am I going to end up paying and will it be due immediately.
Obviously ltd company.
the company may not have sufficient profits or reserves to enable a proper dividend to be paid. If the dividends turn out to have been excessive, the company and its directors could end up in trouble.
the Revenue do not always like to see dividends being paid out too frequently i.e. weekly or monthly as it makes it obvious that the "dividends" are really a substitute for "wages". They have the power to order that the dividends be reclassified as salary and the correct tax and NI calculated.
Edited by Eric Mc on Thursday 20th November 08:32
You have to be careful with dividends as Eric says. Paying regularly can be a problem. Equally, paying yourself a too low wage can be problematic. My PAYE wage is about half of what I could expect to earn working for someone else risk free.
These are the general rules I apply for my situation as yours seems similar. If your gross income - minus your allowances - is up to the upper rate tax band, then there will be no further tax liability on the dividends. I think the dividends you take are treated as gross for the purposes of this calculation - Eric? However, if you go above the upper rate tax band, a further 32.5% tax will be payable. It's not a further 18% (assuming 2007/2008 22% standard rate. For 2008/2009 the standard rate is 20%) as one would expect, because dividends only carry a 10% tax credit, not the full standard rate. I think the other 2.5% comes from the conversion between net and gross?
You will also find that you have to start making payments on account. Basically paying half of your predicted tax bill for next year, 6 months in advance. The other half will then need to be paid in the following January.
From your company's point of view, you will pay Corporation Tax which has gone up from 19% 2007, to 20% 2008, and will go up to 21% 2009. Hence you will be paying this tax on your dividends via your company as well as your personal tax burden on the dividends. It's best to avoid dropping into the upper rate tax band if you can. If you have benefits in kind - such as a company car - you create more problems as dividends are deemed the top slice of your income. Hence if your allowances reduce (or go negative) then the amount of dividends you end up paying 32.5% on increases and you end up with less in your pocket.
If you have a partner and they don't use all of their standard allowance, then you should try and look into ways of distributing your dividends. However, you have to be very, very careful. They must be adding value to your company otherwise the Revenue will come down on you. Take advice from your accountant.
All of the above is my understanding of the system and should be taken as just that. You must take advice from your accountant for your specific circumstances.
These are the general rules I apply for my situation as yours seems similar. If your gross income - minus your allowances - is up to the upper rate tax band, then there will be no further tax liability on the dividends. I think the dividends you take are treated as gross for the purposes of this calculation - Eric? However, if you go above the upper rate tax band, a further 32.5% tax will be payable. It's not a further 18% (assuming 2007/2008 22% standard rate. For 2008/2009 the standard rate is 20%) as one would expect, because dividends only carry a 10% tax credit, not the full standard rate. I think the other 2.5% comes from the conversion between net and gross?
You will also find that you have to start making payments on account. Basically paying half of your predicted tax bill for next year, 6 months in advance. The other half will then need to be paid in the following January.
From your company's point of view, you will pay Corporation Tax which has gone up from 19% 2007, to 20% 2008, and will go up to 21% 2009. Hence you will be paying this tax on your dividends via your company as well as your personal tax burden on the dividends. It's best to avoid dropping into the upper rate tax band if you can. If you have benefits in kind - such as a company car - you create more problems as dividends are deemed the top slice of your income. Hence if your allowances reduce (or go negative) then the amount of dividends you end up paying 32.5% on increases and you end up with less in your pocket.
If you have a partner and they don't use all of their standard allowance, then you should try and look into ways of distributing your dividends. However, you have to be very, very careful. They must be adding value to your company otherwise the Revenue will come down on you. Take advice from your accountant.
All of the above is my understanding of the system and should be taken as just that. You must take advice from your accountant for your specific circumstances.
A fairly good summary. The only clarification I would make would be that it is the GROSS dividend that is taken into account when ading up your pre tax income for Income Tax calculation purposes.
So, if you are a higher rate tax payer and you had paid your self a "Net" dividend of £10,000 into your hand, the dividend value to which the dividend higher rate of 32.5% is applied is, in fact, £11.111.11 (not £10,000.00).
So, if you are a higher rate tax payer and you had paid your self a "Net" dividend of £10,000 into your hand, the dividend value to which the dividend higher rate of 32.5% is applied is, in fact, £11.111.11 (not £10,000.00).
Our accountant (who appears very cautious) dismissed out of hand the idea of paying ourselves mainly dividend in the first year - his view was that dividends can only be properly paid from declared (not assumed) profits.
As it was we approx broke even, but that was paying ourselved fairly normal salaries - as there are 5 working director / shareholders then with minimal salaries we'd have certainly been very profitable.
To answer the original question, there's a calculator here which I think works with fairly minimal input (needs profits, DOB, current and required salary and required divi): http://www.adviserzone.com/calculators/salarydivid...
As it was we approx broke even, but that was paying ourselved fairly normal salaries - as there are 5 working director / shareholders then with minimal salaries we'd have certainly been very profitable.
To answer the original question, there's a calculator here which I think works with fairly minimal input (needs profits, DOB, current and required salary and required divi): http://www.adviserzone.com/calculators/salarydivid...
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