Income tax for director

witney123

Hi Everyone

I have been given a promotion to ops director and I am now named on companies house,of only two directors of a small company.
I just wondered if this below is true or not in my case.

A freind of mine claims I will not have to pay tax on the first £25,000 and thereafter I would then pay tax.

Is this correct as I believe this to be incorrect please advise anyone thanks.

witney123

Thanks gizmoleeds, something was telling me this may be the case.

this_here_giraffe_laughed

If you are a shareholder then dividends received as a basic rate taxpayer are tax-free on the individual. In the higher rate there is an effective 25% income tax charge. Salaries are taxed in the usual way with some additional benefit rules for directors.

However dividends have to be paid universally in proportion to shareholdings. There is is also no corporation tax deduction and there may be additional corporation tax to pay if the company's tax rate is below 19%. No doubt your company accountant will advise on the most tax-effective remuneration.

ManAtHome

Blimey, wish it was true - you will get a tax form to fill in each year though...

silvercar

If you own 100% of your own company you could in theory pay yourself a salary of the peronal allowance (4,795?) and then declare a dividend to take you to the higher tax margin. As dividends are assumed to be net of basic rate tax you have no further tax to pay.

This is probably what your friend referred to.

The downside is that you will have to have an accountant to prepare company accounts, extra paperwork and the company will need to pay corporation tax.

greyster

and the company will need to pay corporation tax.

I'm new to this game too but I think corporation tax is minimal until your earnings are over 50k? I know its 0% until after 10k profit but IR say "marginal relief" (whatever this means) until 50k profit. Tax is then 19%.

this_here_giraffe_laughed

Good old Mr Brown created non-corporate distribution rules which essentially mean that any profits distributed to non-corporate shareholders are taxed at a minimum of 19%.

For example, say you had £30,000 profits. My quick calculation gives tax of £4,750 - a rate of just under 16%. Paying a £10,000 dividend would incur additional corporation tax of 3% on £10,000 = £300.

Come the next budget the lower rates are to be abolished with 19% instead on £0-50,000.

greyster

non corporate shareholder? People not working for the company?

silvercar

non corporate shareholder = private individual
corporate shareholder = another company owning shares

adewton

Sorry, to hijack this. I am an employee and director of a limited company, which I do part-part. Some people say I can use my normal tax code 489L, some say I have to use D0 as I'm already a 40% payer. What is the truth out there?

silvercar

if you are an employee of one company and a director of another you should receive 2 tax codes! If you are missing one then contact the revenue; at the same time tell them which one you want to be considered your main employment. That will dtermine which tax office adopts you. it won't effect the final tax you pay but could effect your tax within the tax year.

if you are an employee and director of the same company all your income is combined and you have one tax code.