Starting up whilst working full time - Dividends and pay
Starting up whilst working full time - Dividends and pay
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Goochie

Original Poster:

5,804 posts

250 months

Friday 10th April 2009
quotequote all
I'm planning on starting up my own business very soon with myself as a director and my wife as a share holder of a Ltd. company (The reasons for going Ltd. and not a sole trader are for another thread). I am employed as a PAYE employee at the moment, as is my wife.

My salary is currently just a few pounds below the next income tax threshold so if I pay myself anything, it will be less tax efficient than paying my wife who has further to go before the threshold, a dividend at the end of the year.

If I pay her dividends, would this affect her tax and NI deductions that are currently made by her employer? In other words, is it going to make life difficult for her employer?

She works for a very small firm who have only recently moved from cash payments to cheques so anything too complicated is likely to be a little too "taxing" !

Iain328

15,115 posts

237 months

Saturday 11th April 2009
quotequote all
Goochie said:
I'm planning on starting up my own business very soon with myself as a director and my wife as a share holder of a Ltd. company (The reasons for going Ltd. and not a sole trader are for another thread). I am employed as a PAYE employee at the moment, as is my wife.

My salary is currently just a few pounds below the next income tax threshold so if I pay myself anything, it will be less tax efficient than paying my wife who has further to go before the threshold, a dividend at the end of the year.

If I pay her dividends, would this affect her tax and NI deductions that are currently made by her employer? In other words, is it going to make life difficult for her employer?

She works for a very small firm who have only recently moved from cash payments to cheques so anything too complicated is likely to be a little too "taxing" !
Not if you are paying divis. No different than if she was receiving divis on shares bought in FTSE quoted companies etc.

The tax will all wash out when she does her tax return at the year end. Obviously your company will need to withold enough to pay corp. tax + whatever it is companies pay on Dividends etc

The thing to be most aware of is the whole "Arctic systems" thing & HMRC's "view" on you diverting income away in this way. If you are joint shareholders you will of course have to split the dividend payments between you - you can't just divert them all to your Mrs if you are a shareholder too.

In short, speak to an accountant & be careful. Its often not worth wringing the last pennies of tax efficiency out if it brings you into dispute with HMRC (who are obviously on the hunt for every penny of tax they can get their hands on at the moment).