New to Dividends

4Chickens

I wonder if you could shed a bit of light on this for me.
Mr 4Chickens and I have recently incorporated his sole trader business.
We are both directors
Mr 4Chickens has 70% shares
He pays himself £500 per month through paye and pays no tax or NI on this

I have 30% shares
I am not employed by the ltd company
I am employed elsewhere and I gross £15600 pa

I know that we will pay 20% corporation tax on the profits and that dividends can only be paid after a provision for the corporation tax has been accounted for.
So if in year to 05/04/2012 we draw £20,000 in dividends between us, £14,000 for Mr 4Chickens and £6000 for me, will either of us end up with a tax liability through our self-assessment tax returns. I have never had to file a self-assessment tax return for myself before.

Cheers

pjclar02

No - there will be no tax on those dividends.

chrismac1

No - see my other posts on this subject. 9,000 in dividends is grossed up by 10% to become 10,000 of income in your tax return. So in your case 6,667 plus earned income 15,600 well below the 40% tax starting point of 42,475. This is key because above this there is tax of 32.5% and one of the ways accountants earn their corn for profitable companies is ensuring tax-efficient dividends are declared.

See my other posts on the following topic - the tax-optimal monthly salary for your husband is 602, to almost optimise tax without paying any NI it is 589.

Finally, depending on the nature of the trade and its track record, you may be able to justify goodwill on incorporation - get ready for howls of dismay from HMRC staff posting on this site! The advantage of this is you can write that off and hence it is a zero-tax way of getting money out. This accounting change took place in 2002 so only goodwill which has been generated since then can be dealt with like this, you definitely need an accountant to capitalise goodwill but the benefits could easily be £400 or more per year for the next 10 years.

antonic

I cant see what the problem ?