Dividends

[Joop123]

Hi all,
I was wondering how much I could pay myself in dividends so that there would be no tax due.I'm going to be taking a salary of £600 per month aswell.

many thanks
J

[gouldie0]

Hi Joop,

You need to work out if you have enough money in the business after tax before you can pay your self any dividends.

You'll need to provide a little more information, for example are you expecting to be in the higher rate tax band (taxable earnings greater than £37,400)? Do you have any other taxable income?

Kind Regards

Neil

[Joop123]

Blimey that was a quick reply, thanks Neil.
I'm estimating a £100k profit in a newly formed ltd business with myself and wife having equal shares. No other income...I'm just thinking before I go see the accountant in a few weeks (on his hols) what would be the most tax efficient way to pay ourselves ?

thanks again
J

[MyAccountantOnline]

Hi all,
I was wondering how much I could pay myself in dividends so that there would be no tax due.I'm going to be taking a salary of £600 per month aswell.

many thanks
J

When you say ''no tax due'' do bear in mind dividends dont reduce your company profits for tax purposes.

As an individual you wont have to pay any higher rate tax on the dividends you receive unless you become a higher rate tax payer.

[Williams lester]

Most tax efficient is £476.25 a month salary, £33,660pa dividends and put the rest in a company pension.

[MyAccountantOnline]

....what would be the most tax efficient way to pay ourselves ?


An accountant will advise you in detail depending on your personal circumstances but generally a combination of salary (£5715 pa) and dividends with possible directors loan repayments too.

[elainec100@cheapaccounting]

Why a salary of £600?

[GGGSurrey]

Most tax efficient is £476.25 a month salary, £33,660pa dividends and put the rest in a company pension.

I can follow the first 2 parts but I wonder why you suggest putting the rest in a company pension?

[elainec100@cheapaccounting]

tax advantages

[GGGSurrey]

tax advantages

I assume that's a comment in reference to the idea to invest excess company income into a company pension plan.

Would an accountant advising such a plan also detail the year-on-year costs of the pension and also the tax payable when the pension is taken?

I've always favoured retention of the money in the company in order in due course to take advantage of entrepreneur's relief - is that an unusual approach?

[Williams lester]

I assume that's a comment in reference to the idea to invest excess company income into a company pension plan.

Would an accountant advising such a plan also detail the year-on-year costs of the pension and also the tax payable when the pension is taken?

I've always favoured retention of the money in the company in order in due course to take advantage of entrepreneur's relief - is that an unusual approach?

As with everything, take professional (paid for) advice from your own accountant, as circumstances are different for different individuals.

[GGGSurrey]

As with everything, take professional (paid for) advice from your own accountant, as circumstances are different for different individuals.

Sure, and the OP should do so and not assume that a company pension is necessarily the best approach.

Whilst, as you say, personal circumstances are all different, it would be interesting to explore the scenarios where an investment of retained profit in a company would be best employed into a company pension and those scenarios where it wouldn't be.

[Williams lester]

Sure, and the OP should do so and not assume that a company pension is necessarily the best approach.

Whilst, as you say, personal circumstances are all different, it would be interesting to explore the scenarios where an investment of retained profit in a company would be best employed into a company pension and those scenarios where it wouldn't be.

I have a number of clients who have set up company pension schemes to buy commercial property which will provide income to the pension fund for a long while.

As I said, if the OP is getting to that position then paid for advice is the way forward not forum posts. We have no idea of the income levels the OP will generate, so cannot pass comment, only give general indications of possible solutions.

[elainec100@cheapaccounting]

tax advantages

I assume that's a comment in reference to the idea to invest excess company income into a company pension plan.

Would an accountant advising such a plan also detail the year-on-year costs of the pension and also the tax payable when the pension is taken?

I've always favoured retention of the money in the company in order in due course to take advantage of entrepreneur's relief - is that an unusual approach?

Yes the comment is in refer to the question asked on co pension.

Any advice given to a client would be specific to and suitable for that client at that time.

Like anything on a free forum it is not advice given nor is it specific. :p

[Joop123]

Many thanks for the posts so far and its good to see many different views , Elaine sorry for not replying earlier but been away most of the day.The £600 is a figure I plucked that would take advantage of my personal tax free but still entitled me to NI contributions.
I was originally just curious of what would be the most we could take out of the business and pay the least tax (but I guess everyone wants that magic formula !)


Again thanks for the views so far
J:)

[elainec100@cheapaccounting]

Thank you - I would suggest though to keep it at £476. You still get NI credits but pay no tax etc

[oldeagleeye]

£100K profit. Less CT = approx £80K whicxh means that you could in theory take out £40K each tax and NI free. That doesn't allow for any retained profits however and there is a way around by taking all tax free and them putting back say £10-£20 as directors loans.

As others have said however - speak to an accountant because 'planning' is everything. If you didn't claim your full tax free dividend allowance this coming year for example you can't make a retrospective directors loan and backdate it next year.

Rob

[Joop123]

Many thanks Rob I appreciate the reply.It more or less answers my original question.

J

[David Griffiths]

£100K profit. Less CT = approx £80K whicxh means that you could in theory take out £40K each tax and NI free.

If there's a salary of £600 a month already taken, then £40k each of dividends will not be tax free as there will be higher rate tax liability once the dividends exceed about £32.5k each

[oldeagleeye]

I think the OP was looking for the optimum and will no doubt take the max allowance of £539.58p a month directors salary if we are going to be precise about exact numbers and I would have thought that you accountants would be a it more precise..:rolleyes::rolleyes:

The max tax free dividend allowance for 2010/11 is actually £37400 and not the £32.5K quoted by David. That is a whacking £4900 quid difference.

Not like you to get it so wrong David:eek:

Bottom line each director can take a total of £43875 tax and NI free and I think that at least the OP knew what I ment that the £40K each included directors salaries.

Oh well back to work t/morow and charge those little grey cells up in the office for you guys in the accountancy profession.:D

Rob
http://img29.imageshack.us/img29/1175/hmrc.jpg (http://img29.imageshack.us/i/hmrc.jpg/) Uploaded with ImageShack.us (http://imageshack.us)

[Williams lester]

I think the OP was looking for the optimum and will no doubt take the max allowance of £539.58p a month directors salary if we are going to be precise about exact numbers and I would have thought that you accountants would be a it more precise..:rolleyes::rolleyes:

The max tax free dividend allowance for 2010/11 is actually £37400 and not the £32.5K quoted by David. That is a whacking £4900 quid difference.

Not like you to get it so wrong David:eek:

Bottom line each director can take a total of £43875 tax and NI free and I think that at least the OP knew what I ment that the £40K each included directors salaries.

Oh well back to work t/morow and charge those little grey cells up in the office for you guys in the accountancy profession.:D

Rob


But your figure would mean that the OP would be suffering NI (both employees and employers) on the portion of salary over £5715 a year (or £476.25 a month), so, as previously stated £476.25 is the optimum salary.

Also, with the dividend payments, you have to remember that these are grossed up by a notional 10% tax to enter into the tax calculation. So (as we would expect) David Griffiths has correctly calculated the tax....and the benefit of using an accountant over trying to muddle through the calculation yourself becomes apparent. :p

[elainec100@cheapaccounting]

The max tax free dividend allowance for 2010/11 is actually £37400 and not the £32.5K quoted by David. That is a whacking £4900 quid difference.


[/URL]

I think you are both right and here is why:

£37400 is gross

£32.5k - well (37400 / 100 x 90) £33 660 is the net figure i.e. paid out of the companies profits.

Difference is notional 10% tax credit.

See here for my blog on 10% tax credit explained ...

[url]http://www.cheapaccounting.co.uk/blog/?p=674 (http://img29.imageshack.us/i/hmrc.jpg/)

:D:p:eek:

[Joop123]

Crikey didnt expect 3 pages :) of replies, was speaking to the accountants payroll master and they have me down for £526.50 GROSS so that this will keep my NI entitlements .
If this is the case and sorry if I am asking something that has been answered but what net can I take out a month in dividends that makes the most of the the tax credit ?
mny thanks again
J

[Brsln2]

I agree with GGGSurrey. The most tax efficient way would be to keep the excess money in business and take advantage of entrepreneur's relief.

[oldeagleeye]

Sorry to go off thread slightly but how does entrepreneural relief work. If I only drew that tyupical directors package for example and left £50K a year in the biz each year for 5 years would the relief be more that paying 40% tax on the £50K each and taking the money out pof the company.

Rob

[CSBob]

Two links covering this subject (been researching it myself lately):

http://www.hmrc.gov.uk/cgt/shares/reliefs.htm

http://www.hmrc.gov.uk/eis/part1/1-2.htm


Sounds to me like a good way to defer tax and ultimately pay far less - provided, of course, that you don't need to draw much income from one particular company in order to fund your lifestyle.

Forward planning is the key here - and professional advice from an expert.

[elainec100@cheapaccounting]

Sorry to go off thread slightly but how does entrepreneural relief work. If I only drew that tyupical directors package for example and left £50K a year in the biz each year for 5 years would the relief be more that paying 40% tax on the £50K each and taking the money out pof the company.

Rob

This is a capital gains tax so ....

It arises on disposal of the business - so it is down to tax planning and timing.

Of course bearing in mind that something that exists now can always be taken away later :p

Here is the HMRC guide to it:

http://www.hmrc.gov.uk/cgt/disposal.htm


But a bit out dated given the recent change to CGT:

23 June 2010 onwards - For gains made from this date the following Capital Gains Tax rates apply:


18 per cent and 28 per cent tax rates for individuals (the tax rate used depends on the total amount of taxable income)
28 per cent for trustees or for personal representatives of someone who has died
10 per cent for gains qualifying for Entrepreneurs' Relief

The 10 per cent rate for Entrepreneurs' Relief replaces the previous method of giving Entrepreneurs' Relief (see above). The relief is subject to an increased maximum lifetime limit of £5 million.


And here in more detail:


http://www.hmrc.gov.uk/rates/cgt.htm


This is only a summary and is an area where expert tax advice should be sought on individual circs

[GGGSurrey]

I agree with GGGSurrey. The most tax efficient way would be to keep the excess money in business and take advantage of entrepreneur's relief.

The decision regarding which route to take is often dependent on how much faith one has in the pension industry

[elainec100@cheapaccounting]

The decision regarding which route to take is often dependent on how much faith one has in the pension industry

and the availability of future tax incentives ;)

[David Griffiths]

The max tax free dividend allowance for 2010/11 is actually £37400 and not the £32.5K quoted by David. That is a whacking £4900 quid difference.

Not like you to get it so wrong David:eek:




I haven't got it wrong. I've worked from the £600 per month salary = £7,200. The £32.5k dividends are grossed up £36111. Add that to the salary and gross income is £43,311. That's about £500 below the higher rate threshold.

Alexander Pope was right ;)