A quick question regards dividends caclulation

[Rechelp]

I'm just about to start a Ltd business and I've been reading on the forum regards how to calculate dividends and salary, but I'm still a bit confused. So I little bit of help would me much appreciated.

Just to make it simple lets count on the follow numbers.

I work as an consultant and own 100% of the shares. I made 100K my first year and I payed myself a salary with amount of 8000, now I want pay myself as much as I can in dividends.

How do I calculate the dividends and the taxes related to it?

 

[UK Contractor Accountant]

100K profit
8K salary
92K taxable
18.4K corp tax
73.6K profit after tax
73.6K max dividend payable

 

[Scalloway]

Your profit is sales less business costs. Remember there may be other costs apart from salary that can be deducted. Coproration tax is 20% of profits.

 

[Rechelp]

Thanks so much for the help!

Sorry for sounding stupid, but how much would I have left from the below calculation?

100K profit
8K salary
92K taxable
18.4K corp tax
73.6K profit after tax
73.6K max dividend payable

 

[Scalloway]

You would have £73,600, the company would have nothing except the money to pay its Corporation Tax.

 

[Rechelp]

This is hugely advantage, if my profit before any taxes are 100K. And I only pay approximately 26% in taxes and can keep the rest. Or have I missed anything?

In my country I would need a profit of 180K to keep about 74K.

Thanks for all the help

 

[Mitchells Bristol]

Yes - you have missed the fact that you would also have an £8,000 salary, meaning you would have c£82k. Unfortunately however if you are UK tax resident the dividends would be liable to personal income tax, subject to your personal tax situation likely to be at least a further £8k in tax

 

[Rechelp]

I knew there was a catch ! So if I'm UK resident I would need to pay further taxes? How can I calculate the 8K you mentioned? What is it based on?

Yes - you have missed the fact that you would also have an £8,000 salary, meaning you would have c£82k. Unfortunately however if you are UK tax resident the dividends would be liable to personal income tax, subject to your personal tax situation likely to be at least a further £8k in tax

 

[faradaykeynes]

for tax year 2013-14, it will be about

PAYE gross £8,000.00tax £30.24net £7,969.76

Dividend Incomegross £73,600.00tax £10,729.75net £62,870.25
£18,907.53 Dividend Tax Before Tax Credit
-->Ordinary@10% £32,010.00 = £3,201.00

-->[email protected]% £48,327.78 = £15,706.53

-->[email protected]% £0.00 = £0.00

-->Less Tax Credit on Dividends of £8,177.78

£10,729.75 Dividend Tax After Tax Credit

 

[spider1988]

Where does the £80,337.78 come from (48k+32k)?

Additionally would their not be further deductions i.e N.I and VAT? If so his NET (£70,840.01 before further deductions) would probably be lower than 70% referring back to the original question.

Is there any other way for example moving the numbers around to create less tax in a specific margin or making your wife a shareholder/director where he could make more net profits?

Im away to start a similar position myself and these numbers are pretty close so this post is beneficial for me also. So thanks thus far.

 

[faradaykeynes]

there is no N.I and VAT involve here and lot of family run businesses are based on Husband wife share holdings. Shareholders get dividends from point they are allotted shares

 

[spider1988]

You haven't answered the question regarding the 80k?

I am also confused regarding the PAYE of the employee. Personal allowance allows any employee within the UK to make £9,440.00 a year before paying any tax. Although this employee would pay £30.24 in National Insurance maybe this is where your getting confused.

 

[faradaykeynes]

that 80k is to do with dividends tax rates as follows and 32 is PAYE (ni)
Dividend tax rates 2013-14
Dividend income in relation to the basic rate or higher rate tax bands Tax rate applied after deduction of Personal Allowance and any Blind Person's Allowance
Dividend income at or below the £32,010 basic rate tax limit 10%
Dividend income at or below the £150,000 higher rate tax limit 32.5%
Dividend income above the higher rate tax limit 37.5%

 

[Scalloway]

Where does the £80,337.78 come from (48k+32k)?

Dividend grossed up for 10% tax credit ........£81,777.78
Personal allowance £9,440
Less salary............£8,000
Deduct difference from gross dividend to give
sum taxable...............................................(£1,440.00)
Taxable income.........................................£80,337.78

 

[spider1988]

I'm on here to gain some information but all I seem to be doing is correcting other peoples calculations. Below are my calcs. Hopefully this will help you Rechelp. You can play about with the calcs further (i.e pay yourself £7,500 as a salary and pay no N.I) but the calcs below will gain you the highest NET profits.

Bear in mind their is no expenses on this. These can also be tax deductable and increase your margin further.

£100,000.00 Gross Profit before taking a Basic Salary (Up to your tax free allowance)
£9,440.00 Employee Salary taken from Gross Profit
£240.67 Employers NI taken from Gross Profit
£203.04 paid as Class 1 National Insurance Contributions on the Basic Salary (Employees NI)
£90,319.33 new Gross Profit declared
£18,063.87 Corporation Tax on Gross Company Profit
£72,255.46 Net Company Profit
£10,861.62 Income (Dividend) tax (after tax credit) on Net Company Profit
£70,630.81 Total Take Home Pay (Net Dividend + Employee Salary) from £100,000.00 Company Profits after all tax deductions
£29,369.19 Total Taxation
29.37% Total Tax (DIVIDEND)
70.63% Net Profit

 

[UK Contractor Accountant]

yes - and by allocating some shares to wifey we can increase that 71% to say 81%.

 

[UK Contractor Accountant]

yes - and by allocating some shares to wifey we can increase that 71% to say 81%.

i should say wifey or hubby!

 

[Rechelp]

70.63% Net Profit = about 71K I can cash out

Share the company with "wifey" means 81K in cash out

Did I finally got this right?

I'm on here to gain some information but all I seem to be doing is correcting other peoples calculations. Below are my calcs. Hopefully this will help you Rechelp. You can play about with the calcs further (i.e pay yourself £7,500 as a salary and pay no N.I) but the calcs below will gain you the highest NET profits.

Bear in mind their is no expenses on this. These can also be tax deductable and increase your margin further.

£100,000.00 Gross Profit before taking a Basic Salary (Up to your tax free allowance)
£9,440.00 Employee Salary taken from Gross Profit
£240.67 Employers NI taken from Gross Profit
£203.04 paid as Class 1 National Insurance Contributions on the Basic Salary (Employees NI)
£90,319.33 new Gross Profit declared
£18,063.87 Corporation Tax on Gross Company Profit
£72,255.46 Net Company Profit
£10,861.62 Income (Dividend) tax (after tax credit) on Net Company Profit
£70,630.81 Total Take Home Pay (Net Dividend + Employee Salary) from £100,000.00 Company Profits after all tax deductions
£29,369.19 Total Taxation
29.37% Total Tax (DIVIDEND)
70.63% Net Profit

 

[spider1988]

Yiser!

UK Contractor Accountant - Does the amount of shares the 'wifey' have implicate how much of a dividend she can withdraw?

Also I hear if you are a ltd company that gross's more than 77k you have to be be VAT registered, in Rechelps case where would VAT come into it?

Finally on expenses in Rechelps case where he is simply contracting and he is the only employee is this classed as inside IR35 or outside?

Feedback would be much appreciated.

Finally we are getting somewhere.

 

[Scalloway]

The limit for VAT registration is currently £79,000. Dividends for a class of share are paid in proportion to shareholding.

 

[UK Contractor Accountant]

At present the income shifting provisions relating to husband and wife do not apply so there is nothing to stop you allocating shares 50:50 with dividends paid equally, although I would not recommend this. I usually recommend 75:25 split that way you retain total control of company if things go south!.

vat does not affect the calculations unless you are on the vat flat rate scheme.

IR35! cumbersome and ill thought out piece of legislation. Just because you are contracting for 1 company does not neccasarily mean you are within IR35, the facts of each engagement and signed contract need to be looked at. IR35 is currently under review by HMRC!!!!!

 

[spider1988]

Scalloway any chance of you elaborating further? Or do we need to bleed this out?

Would Rechelps business (contracting) have to pay any VAT?

 

[faradaykeynes]

figures in P&L are net of vat

 

[spider1988]

UKCA- So based upon the business above would it be mandatory that Rechelp needed to be on the vat flat rate scheme? Yes or No?

So again let's put this in Lehmans terms. If it was a 75:25 split. The most the 'wifey' could withdraw as a dividend would be 25k?

 

[faradaykeynes]

There are condition to be in flat rate vat scheme, what ever the split of shareholding dividends would be distributed as per split

 

[Mitchells Bristol]

UKCA- So based upon the business above would it be mandatory that Rechelp needed to be on the vat flat rate scheme? Yes or No?

No - the flat rate scheme is optional, it is never mandatory. Normally it is beneficial however.

So again let's put this in Lehmans terms. If it was a 75:25 split. The most the 'wifey' could withdraw as a dividend would be 25k?

No - the most the wife could withdraw is 25% of the distributable profits. In the above example, this is lower than £100,000.

 

[spider1988]

Would it be worthwhile having the wife as a shareholder if her current salary was already 30k?

 

[teddys]

Would it be worthwhile having the wife as a shareholder if her current salary was already 30k?

Whilst adding in your spouse as a shareholder, and thereby diluting your ownership, requires you to keep adequate paperwork to comply with the laws, let me just show you what level of ownership your spouse could ideally have:

- the threshold including personal allowance £41,450
- her salary £30,000
- unused balance £11,450
- £11,450 x 0.90 = £10, 305. Let us say £10,000. That is the maximum she could absorb without any tax consequences. So if you usually have 100k distributable surplus you might want to gift her 10% so she gets 10k dividend.

 

[UK Contractor Accountant]

If you have childeren you might want to consider letting them have some shares via grandparents as trustees?

 

[Searching for Perfection]

Thanks so much for the help!

Sorry for sounding stupid, but how much would I have left from the below calculation?

CT computation will differ if you have any dis-allowable expense like depreciation or Entertainment.