Dividend basic rate

skinnerneil

This is probably a stupid question.

I own a business and am paying myself £ 419/ month (£ 5035/ year) as salary which carries no NI or Income tax as within the tax allowance.
I take the rest of my income as dividend.

Am I right in thinking I can pay £ 33,300 in dividend tax free before I go into the higher rate band?

I realise company will be taxed at 19 % on this.

Or is it £ 33,300 in total income (including the £ 5035) , i.e. £ 28265 in dividend?

Hoddie_2

The HR threshold is not crossed until your earnings reach £38,335. So taking off your PA of 5,035, you can earn an extra 33,300 before you pay higher rate tax.

greyteam1959

I do the same as you in my business pay a small wage and a big dividend.
I would ask you accountant about the tax position cos I am not sure what it is on this point.
Whilst you are taking to your accountant check up on this......
You are paying yourself below the tax and NI threshold but you must look at the pension side of not paying NI if you dont pay any NI you will not qualify for a state pension.
I pay £1 over the NI threshold and therefore qualify for full pension rights.
You should really get professional advice on both points

Hoddie_2

It's also worth remembering that the government is likely to stop this kind of avoidance within a few years.

I pay £1 over the NI threshold and therefore qualify for full pension rights.

Particularly as people like you are abusing the current system.

greyteam1959

Sorry mate not abuse at all its called playing the system.

Hoddie_2

Someone who earns £38,000 via PAYE pays the following:
£6,994 in income tax, and £3,178 in National Insurance.
Total £10,172.

Someone who earns £38,000 but only £6,000 via PAYE with the rest through dividends pays the following:
£96 in income tax, £6,080 in corporation tax, and £106 in National Insurance.
Total £6,282.

There is a lower tax rate on dividends because it is assumed that those who receive dividends have invested capital in the business and risk losing that investment if the business fails.

Obviously I don't know whether you've invested in your business or not, but there are thousands who don't and yet still take their earnings in dividends. This is certainly an area where HMRC and the government are keen to reduce 'loss to the public purse', primarily because it is one of the main contributing factors behind not having enough money in the 'National Insurance' pot.

Does someone who earns £38,000 but pays only £106 in National Insurance deserve the same right to state benefits as someone who earns the same amount but pays £3,178 in National Insurance?

The short answer is no, and the more people who 'play the system' in this way, the more people will likely suffer in the long run.

RayWolfe

Yep, Hoddie is right. Why is my 90 year old mother paying income tax on her small pension whist you pay less than your fair share? And what do you think of people on benefits "playing the System"?

Hoddie_2

I'll try and help anyone who isn't claiming what they're entitled to claim, but those who bend rules in order to deliberately pay less than their fair share really get on my tits.

You are not entitled to disguise employment earnings as dividends. It's worth remembering that the 0% corporation tax band was scrapped due to the massive-scale abuse. This has hit genuine small businesses extremely hard.

Also, companies could fall foul of the National Minimum Wage act if their directors have a contract of employment but don't pay a full NMW (a PAYE scheme would suggest this is the case, though there are exceptions).

WHA

Hoddie wrote:

The HR threshold is not crossed until your earnings reach £38,335. So taking off your PA of 5,035, you can earn an extra 33,300 before you pay higher rate tax.

Remember though that the £33,300 is the "gross" dividend with the 10% notional tax credit added, and equates to a "net" take home dividend of just over £30,000, so to avoid higher rate tax, you take a net wage of £5,035 and a dividend of £30,000.

WHA

Hoddie wrote:

I'll try and help anyone who isn't claiming what they're entitled to claim, but those who bend rules in order to deliberately pay less than their fair share really get on my tits.

You are not entitled to disguise employment earnings as dividends. It's worth remembering that the 0% corporation tax band was scrapped due to the massive-scale abuse. This has hit genuine small businesses extremely hard.

Also, companies could fall foul of the National Minimum Wage act if their directors have a contract of employment but don't pay a full NMW (a PAYE scheme would suggest this is the case, though there are exceptions).

If you are self employed and "in business" you don't have what Hoddie describes as "employment earnings" so there is nothing to be "disguised".

I completely agree that those people who are really employees but disguising themselves as self employed through managed service companies need to be stopped (and from April 07 will be stopped), but please don't try to pretend that people genuinely in business should be paying the same NIC as those who are employees.

Some major differences - far poorer sick pay for self employed, hard to get JSA or other state benefits if the business fails, poorer state pensions, etc. etc. Then of course, there are all the non-government factors, such as generally having to pay more mortgage interest or difficulties in getting mortgages and loans, working longer hours for similar or lower pay, burden of paperwork and regulation, etc etc.

If the government deemed it appropriate to give the same benefits and entitlements to self employed as they do to employees, then probably it would be fair to expect the self employed to pay the same levels of NIC, but until they do, leave the truly self employed businesses alone - by all means concentrate on the "leave the desk Friday as an employee and rejoin Monday as self employed" but leave the real businesses alone.

SMARTY29A_2

so for up to 07 april, how much can i take in earnings and dividends

am i right in thinking
about 5035
and 28000

sorry, forgot to say to try and keep me out of higher dividend rate thanks