Avoiding Tax by Moving Country?

Randvegeta

bobwilson wrote: »

Then why is the normal technique for the owner-manager to pay a minimal salary and take the rest as dividends.? If the salary is not subject to income tax anyway then what's the point in the dividends?

Huh? That doesn't make a lot of sense.

A corporation pays tax on its profits. Salaries are an expense. So the employee is taxed on his/her salary and the company is taxed on the profits. If the owner doest pay him/herself a salary, the money stays with the company, boosting its profit and therefore is taxable.

The reason people pay themselves less is because corporation tax is lower than personal income tax.

Dividends have traditionally been taxed at a lower rate than income tax.

So the idea is simple.

Company owners pays minimal salary to have a very low personal tax burden. Company pays corporation tax between 20% and 28%. The owner takes money out of the company through dividends, which is normally taxed at only 10% for basic rate payers.

It's not that complicated really...

bobwilson

Randvegeta wrote: »

Company owners pays minimal salary to have a very low personal tax burden... It's not that complicated really...

Why are you telling me that though? laurel7172 is the one who said it.

laurel7172 wrote: »

you pay corporation tax OR PAYE/NI. Not both.

See above. He thinks you're not subject to income tax.


but you're saying salary is subject to it, but you can decrease the burden by using dividends.

This is my take on it: As a one man Ltd. business owner in UK, you pay:
a.) VAT on EU sales
b.) Corp tax on profit
c.) income tax on salary within rules.

In order to cut down c.) income tax, we pay ourselves the personal tax-free allowance and the rest in dividends.

So whats the truth here.. we're getting conflicting info. I'm with you by the way Randvegeta.

I'll let you two battle it out!

chrismac1

Note that the main saving in dividends is NI not tax. Dividends are deemed to be investment income not employment income, so liable to income tax but not NI. The key to dividend policy in successful companies - what the clients pay me for - is to have the right mix of salary, dividends, pension contribution to stay out of 40% tax - because dividends start to get expensive again for higher rate taxpayers.

Ultimately greedy clients or those with high overheads such as shopaholic partners have to face the music and cough up higher rate tax. But for those with careful lifestyles who trust their partners who are also shareholders it is possible to take a lot of money out - the best part of £100k per year - with no 40% tax.

Randvegeta

I think the point laurel7172 was TRYING to make is this:

If a company earns £100K in 'profit' (and I am excluding the owner's salary here) then about £20k should be paid as tax.

If the owner then decides to pay himself a salary of £10k, then that is subject to income tax, BUT the corp tax should have been 20% of £90K instead of 20% of £100k.

Does that make sense?

But getting back to your point, its better to pay 10% tax on dividends than 20% tax on income + NI.

bobwilson

Randvegeta wrote: »

I think the point laurel7172 was TRYING to make is this:

If a company earns £100K in 'profit' (and I am excluding the owner's salary here) then about £20k should be paid as tax.

If the owner then decides to pay himself a salary of £10k, then that is subject to income tax, BUT the corp tax should have been 20% of £90K instead of 20% of £100k.

Does that make sense?

It didn't sound like he was trying to say that.

I agree Randvegeta, this is what I understand of the tax system too.

I've never had any help or inheritance and come from a modest family. In the past, I was attacked by a gang of youths, and the police did nothing to help me, I was mugged in broad daylight and begging for people to call the police. An hour later they still hadn't turned up. I witnessed someone else being mugged and ran to their rescue, I called 999 and they said the police were 'busy' !. The one time I've needed a hospital for my grandfather, they didn't give him the monitor he was supposed to get. His heart failed and if my mother didn't walk in when she did and scream for the doctor, he would be dead. Years ago I went to the GP with a lump, and the GP didn't look at me, just sent me away looking scared, saying 'its probably nothing'. She is like this with all her patients apparently. I went to another GP many years ago with depression, she replied ''You come to a GP with depression? I'm not a counsellor, I'm a doctor. I deal with broken legs etc. Get out!''. The next day a stranger on the street caught me jumping off westminster bridge and saved my life. When I moved to a School in the countryside in the UK, I was bullied and threatened with death threats because the other pupils had never experienced someone new (old countryside back then). My parents had to go in debt to pay for a cheap private school for my safety. My mother has been going to the GP with worrying symptoms for months, but the GP was irritable, insisted nothing was wrong, refused to listen and told her to go away repeatedly. I had to pay for a private specialist and it recently turned out she has a permanent disease that could have been prevented had the NHS GP listened to her. I couldn't go to university because I didn't get enough government funding, and my family couldn't help me. I had to get seriously in debt with credit cards and loans to get a basic degree. The UK government has never done anything for me, in fact their services have hindered me and my family.

I'm fine now that I'm in midlife, I'm talented, have got myself out of debt, paid many taxes, and I'm powering on with my life, but point being the government services didn't help me, ever. This is just a small ounce of my experience in the UK, but I've never had a decent service from police or NHS or any public services in this country, and I feel I've paid them too much already. I realise I was born to british parents, but is there anything I can do at all, e.g. move to Andorra?

Long story short, I will never be able to get on the housing ladder. I finally have created a one-off opportunity to make a decent amount in 2 years self employed by working all hours god sends, on my own online company, but then nothing after that. So, I need to keep as much as possible of what I earn from those 2 years to buy a modest place to live, which is going to be hard enough as it is.

Randvegeta

Okay, so you have an online business. Great! Then you can move anywhere. How about this?

Establish your business in a tax haven, like Hong Kong. Earnings made outside of HK are tax free!

Then you live as a perpetual traveller. You spend 4 months in 3 countries. You never become tax resident and you can live a full life tax free.

Since your business is online, you can work from anywhere right? Then you just need to pick cheap places to live. Once you have enough money to 'settle down' pick a place of your choice. Canada? Australia? Etc. Anywhere really.

That's basically what I do

John_Pierpoint

http://appointmetotheboard.com/amttb-rich-list.htm
http://www.cruiselawnews.com/2011/02/articles/taxes/no-taxes-the-cruise-lines-dirty-little-secret/
http://www.dailymail.co.uk/news/article-2002242/San-Tropez-Seychelles-SOUTH-SHIELDS-Luxury-tax-haven-cruise-liner-super-rich-docks-Geordie-shore.html
http://en.wikipedia.org/wiki/Andorra
Sandwiched in the eastern portion of the mountain range between the Spanish Pyrenees and French Pyrenees.
In the 1950's, when I first went there en route to Barcelona, it was a mountain sheep station with gravel roads,
now it is a shopping centre with added tourism. Difficult to get to so the "super-rich" prefer the small town/state of Monaco.
http://en.wikipedia.org/wiki/Monaco

bobwilson

Randvegeta wrote: »

Okay, so you have an online business. Great! Then you can move anywhere. How about this?

Establish your business in a tax haven, like Hong Kong. Earnings made outside of HK are tax free!

Then you live as a perpetual traveller. You spend 4 months in 3 countries. You never become tax resident and you can live a full life tax free.

Since your business is online, you can work from anywhere right? Then you just need to pick cheap places to live. Once you have enough money to 'settle down' pick a place of your choice. Canada? Australia? Etc. Anywhere really.

That's basically what I do

Thanks! sounds like an interesting idea, but why not just move to Andorra? I can be a sole trader there tax free, can I not?

Randvegeta

bobwilson wrote: »

Thanks! sounds like an interesting idea, but why not just move to Andorra? I can be a sole trader there tax free, can I not?

Yes I suppose so. But I don't know much about Andorra so I can't comment much.

TrickyDicky101

There is NO marginal rate of tax on dividend income for BASIC rate taxpayers - there is a 25% Marginal rate of (income) tax for 40% taxpayers. Hence, in the hands of a basic rate taxpayer, receipt of a dividend is tax efficient since there is no further tax to pay on the dividend received.