PAYE vs Dividends?

[anonuk]

My wife and I are both directors of our limited company and business has been increasing year on year to the point where we feel we can both take a "Proper" salary from the company rather than the £472 per month I have been taking to date.

What I'm trying to work out is the most tax efficient way to do this, but also keeping in mind what impact it will have when I come to apply for a mortgage for example.

I am thinking of an overall salary of £40,000 for myself. If I do this through PAYE, I will end up with a take home pay of around £30,860 if I've worked it out correctly, and the Employers NI would be around £4,300.

If I pay myself the basic amount of salary and the rest in dividends, I would have a take home pay of around £37,000 but the company would have to pay around £4830 in CTax.

Financially, the dividends option is definitely more appealing but how will that effect things like applying for a mortgage down the road? Am I safer just doing it all through PAYE and being done with it?

 

[Energise Accounting]

An Accountants job is to help you pay the least amount of tax possible legally of course. What you need is a good mortgage advisor.

 

[WaveJumper]

The question is what does your account advice. As above they will be best placed to give you the answer as they should obviously be aware of your overall financial position. My son has just gone through the whole mortgage application process and your best bet is to find a very good mortgage / tax advisor who will have access to a whole range of products.

Depending on the lender this will depend on the “evidence’ they require, and this will be linked to the interest rate you are going to get offered.

 

[MyAccountantOnline]

...Am I safer just doing it all through PAYE and being done with it?

It'll probably cost a lot more in tax, but as mentioned you need advice from a mortgage specialist.

A salary of £472 per month is an odd amount??

 

[Spur Support Services]

As @WaveJumper says, it's definitely one to talk through with your accountant or crunch the numbers yourself, considering all the total tax and NIC considerations for both personal and business including the overall financial position of both you and your wife, taking care to consider wider benefits and allowances that may be affected.

As @Energise Accounting said, it is a good plan to talk through your income needs with a Mortgage Adviser, who should be able to source a variety of options and help you understand how the providers assess income levels. I concentrate on Tax and Accounts, but there may be Mortgage Advice specialists in the Forum, who can give you greater assistance in that area

 

[Alan]

Financially, the dividends option is definitely more appealing but how will that effect things like applying for a mortgage down the road? Am I safer just doing it all through PAYE and being done with it?

This has been an issue for a relative, who has been on the 'optimum PAYE' for tax, but now wants a mortgage and can get no where near a decent mortgage, despite several mortgage advisors.
So now his accountant has revised his PAYE significantly up, and now he needs to wait until that is paid consistently enough to satisfy the mortgage companies.

What I'm saying, plan well ahead or you may run into similar difficulties.

 

[DWS]

I thought most lenders these days accept dividends as income from Director/Shareholder close Companies, but as everyone has advised check with both your accountant and FA

 

[OMGVape]

I’ve been through this. If your business and personal accounts are done by a chartered accountant for the previous 2-3 years any mortgage broker will be able to get you a mortgage.