Dividends

TuftyMatt

Any,

Thank you. 32.5% is a start so lets hope others come up with a few more ideas.

jem16

TuftyMatt wrote: »

Any,

Thank you. 32.5% is a start so lets hope others come up with a few more ideas.

Remember that dividends come with a 10% tax credit which will count towards that 32.5%.

Pumpkinface_2

TuftyMatt wrote: »

As an employed 40% tax payer I may have the chance to take a shareholding in a newly formed company and make extra income from the service I offer.

As you can imagine I do not wish to pay 40% tax on any extra income (if possible.) and was thinking about taking dividend payments.

Is this possible or is there another way of paying myself without giving so much to AD?

It may be possible, but it really depends on the specifics of the contracts you enter. In a nutshell, if the contracts are like "employment" contracts in all but name then you would have to pay income to yourself as salary. Otherwise it could be fine to take dividend payments, you should read up on IR 35.

queen_of_string

Just to quickly say, dont forget in the first year of trading you wont receive a tax bill but you absolutely must save up your tax, I know from experience it's a nasty shock otherwise.
Also in the second year of trading, in the Jnaquary they will ask for half a year 's payment on account, so you end up, in the second year, paying what feels like a year and half's payments.

slipp_digby

Pumpkinface wrote: »

It may be possible, but it really depends on the specifics of the contracts you enter. In a nutshell, if the contracts are like "employment" contracts in all but name then you would have to pay income to yourself as salary. Otherwise it could be fine to take dividend payments, you should read up on IR 35.

why would being a shareholder in a company be 'like an employment contract'?

the poster already has a PAYE job at 40% tax and wants to become a SHAREHOLDER in a separate company.

being a shareholder is NOT an employment contract and you also dont neccessarily need to be employed by the company if you hold shares. shareholders can receive dividend income and if ALSO employed as directors can receive a salary (although they dont have to recevie remuneration).

the poster also says nothing which would infer that IR35 is involved. IR35 is simply to catch 'hidden' employees like IT contractors who work in a permanent job for one employer but set up a ltd to avoid income tax.

slipp_digby

jem16 wrote: »

Remember that dividends come with a 10% tax credit which will count towards that 32.5%.

assuming the company can pauy dividends to you i.e. no IR35 etc

dividend income above £37.400 basic rate of tax is taxed at 32.5%. 10% tax credit attached to the dividend when issued.

I think the rate is therefore 22.5% on 9/10 of the dividend payment

i.e you'll get taxed at 25% on dividend income.

Baz_2

Yes 25% effective tax on higher rate tax payers for dividends.

Also about the £6475 wages and dividend theory, now that the NI and Tax bands have separated and are no longer the same, paying a £6475 salary will get you a small NI bill. Still tax free though but the salary would need to be £5720 for it to be tax and NI free.

The reason you take a salary and not just 100% dividends is that it reduces the CT bill and also gives you your state pension credit.

Pumpkinface_2

slipp_digby wrote: »

why would being a shareholder in a company be 'like an employment contract'?

the poster already has a PAYE job at 40% tax and wants to become a SHAREHOLDER in a separate company.

being a shareholder is NOT an employment contract and you also dont neccessarily need to be employed by the company if you hold shares. shareholders can receive dividend income and if ALSO employed as directors can receive a salary (although they dont have to recevie remuneration).

the poster also says nothing which would infer that IR35 is involved. IR35 is simply to catch 'hidden' employees like IT contractors who work in a permanent job for one employer but set up a ltd to avoid income tax.

I didn't say being a shareholder was like being in an employment contract nor anything remotely similar.

The poster said something about "offering a service" (they didn't say there were just an investor) so I said depending on the nature of the service / contract / arrangement with the client, it might fall into the scope of IR35, (i.e. be like an emplyment contract). The poster said nothing to indicate whether their services would or would not fall into IR35, I have no view on it, I just thought it would be helpful to remind the poster to consider IR 35 just in case.

A point you make yourself in your next post. :huh:

Why you feel the need to be so aggressive to somebody who is only trying to help on an internet forum is quite beyond me. To be honest posts like that really make me think why am I bothering and as a 16 years qualified accountant, I am sure there is somebody, somewhere that might appreciate my input.

TuftyMatt

Pumpkinface,

Thanks very much for your input as it gives me plenty to think about.

I will post more details if and when things move on and would be pleased if you gave a view in future.

slipp_digby

Pumpkinface wrote: »

Why you feel the need to be so aggressive to somebody who is only trying to help on an internet forum is quite beyond me. To be honest posts like that really make me think why am I bothering and as a 16 years qualified accountant, I am sure there is somebody, somewhere that might appreciate my input.

my concern is only that the poster gets good clear advice. and after post #3, i had concerns about your authority to guide him/her.

I also invest a lot of time in helping people on this forum, the difference is I am prepared to be challenged when i offer advice.

its a forum thats how it works