Ltd Co - dividend Vs Salary

[david10439]

Hi great info on the blog. I have just set up as a limited company and expect an income of approx 60K post expenses. I'm getting mixed messages on the most effective way to withdraw this 60K. Some have said I can take 37K in salary at the lower rate of tax and the remainer as dividend post corp tax etc.

Any advice would be welcome

Dvaid

 

[robindunne]

You need an accountant for this (well I would say that wouldn't I)

Take a read on the sticky on the top of this forum as there are more things to consider. You need to think about VAT, dispensation for subsidence, PAYE, overhead expenses etc.... to name a few off the top of my head.

P.S. Pay yourself £6475 as a salary to use personal allowance, further £37,400 in dividends to avoid additional personal tax on the dividends.

 

[taxattack]

Hi great info on the blog. I have just set up as a limited company and expect an income of approx 60K post expenses. I'm getting mixed messages on the most effective way to withdraw this 60K. Some have said I can take 37K in salary at the lower rate of tax and the remainer as dividend post corp tax etc.

Any advice would be welcome

Dvaid

David

A more tax-effective way, other things being equal, is to take a salary of £5715, which gives NI credit for state pension and other benefits. Total taxes would be:
CT ((60000-5715)*21%) 11400
Dividend (60000-5715-11400)*10/9 47650
Tax on lower rate dividend nil
Tax on upper rate dividend - effective rate after tax credit
(47650-(43875-5715)) *22.5% 2135
Total tax 11400+2135 = 13535

Compared to:
Employers NI (37400-5715)*12.8% 4056
Employees NI (37400 - 5715)* 11% 3485
CT (60000-37400-4056)* 21% 3894
Tax on salary (37400-6475) * 20% 6185
Total dividend (60000-37400-4056-3894)*10/9 = 16277
Tax on lower rate dividend nil
Tax on upper rate dividend - effective rate after tax credit
(16277-6475) * 22.5% 2205
Total taxes 4056+3485+3894+6185+2250 = 19826

Am assuming you are sole shareholder and director.

Chris

 

[MyAccountantOnline]

Pay yourself £6475 as a salary to use personal allowance, further £37,400 in dividends to avoid additional personal tax on the dividends.

I'd suggest a salary of £5715 to avoid unnecessary National Insurance.

 

[David Griffiths]

P.S. Pay yourself £6475 as a salary to use personal allowance, further £37,400 in dividends to avoid additional personal tax on the dividends.

That doesn't work. There would be NIC on the salary, both employers and employees, and there would be higher rate tax of £934 due.

 

[robindunne]

That doesn't work. There would be NIC on the salary, both employers and employees, and there would be higher rate tax of £934 due.

David,

The higher wage and employers NI contributions would be allowable deductions for Corporation Tax. All things being equal, the difference in net benefit to the employee/director is marginal.

This is a good example of why you need to engage an accountant. Each situation is different. You can keep trying to glean free information from forums like this and getting "mate down the pub" advice - but it all really is a false economy compared to what a qualified accountant can do for you.

P.S. Not sure where you get the £934 higher rate tax due.

Personal Allowances - £6475
Starting rate of tax - £37400

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

Unless, I am missing something - it is Sunday evening afterall. :|

 

[taxattack]

David,

The higher wage and employers NI contributions would be allowable deductions for Corporation Tax. All things being equal, the difference in net benefit to the employee/director is marginal.

This is a good example of why you need to engage an accountant. Each situation is different. You can keep trying to glean free information from forums like this and getting "mate down the pub" advice - but it all really is a false economy compared to what a qualified accountant can do for you.

P.S. Not sure where you get the £934 higher rate tax due.

Personal Allowances - £6475
Starting rate of tax - £37400

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

Unless, I am missing something - it is Sunday evening afterall. :|

The £934 is the tax on the part of the grossed up dividend which falls into the higher rate bracket.

Chris

 

[David Griffiths]

This is a good example of why you need to engage an accountant.

Thank you for your patronising comment.

I am an accountant. An accountant who understands that dividends are grossed up, so that £37,400 of dividends is grossed up to £41,555.56 taking the recipient into the higher rate tax bracket. Every day, not just Sundays.