Dividend, paye and company car!

skemp1

Hello,

Wondering if anyone can help me work out what my future earnings will be.

I have been offered shares at my company with the chance to pay them off with what parts of the shares earn. Here is the info.

Paye earnings. £25000 basic pa approx

11% shares = £38000 per annum income purchasing an extra 1% every year after until 20%.

Also i will have a company car that makes my tax code, lower than it should be around 468l.

Also, i get bonus that amounts to around £14000 per annum.

Could anyone give me an idea of my monthly earnings after tax as i understand that i may not have to pay NI on dividends and also 10% on the dividends.

Thanks for any help recieved.

skemp1

Bump! Anyone got any ideas?

dtaylor84

skemp1 wrote: »

I have been offered shares at my company with the chance to pay them off with what parts of the shares earn. Here is the info.

Paye earnings. £25000 basic pa approx

11% shares = £38000 per annum income purchasing an extra 1% every year after until 20%.

I don't know what you mean by 11%, 1% or 20%. What are these percentages of?

And,for that matter, what do you mean by "the chance to pay them off with what parts of the shares earn."

If you could explain that, people may be able to help...

CLAPTON

Sadly, you may know what you mean but your post makes no sense to me or (I would guess) many others.

skemp1

Sorry,

It made sense when i wrote it but my head was full of numbers!


My company are wanting to make me a director, there are 2 direcotors currently and it is a limited company that makes £450k profit approx per annum with a turnover of around £2m.

They are going to "give" me 11% of the company in shares that will generate a dividend payment of around £38k a year, performance dependant.

In additon to the 11% of shares that they are giving me they want me to purchase an extra 1% share every annum until i reach 20%.

They want me to have a paye salary of £25k per annum and on top of this i get £14k of bonus payments that go through paye as well so £39k will be paye, the rest will be dividend payments.

I just wonder how much i will actually earn. My tax code is lower as i have company car it is around 468L.

The extra 1% that i will pay to purchase the extra share every year will be around £26k per annum i think....

Thrugelmir

skemp1 wrote: »

They are going to "give" me 11% of the company in shares.

Take advice. As you may have a very large tax bill arrive on your mat.

The shares you buy will need to paid for at market value to avoid tax implications. .

skemp1

The company are giving me an interest free loan to buy the shares which I then have to pay back slowly over the years once I own 20% of the company.

CLAPTON

I don't know how to value the shares but one assumes, on a P/e of say 10 to 20 then they are worth up to £1million

one would assume that there was some tax on that

in addition you have a income of 39K pa and dividend payments of 38kpa

you have a interest free loan

in addition you have a company car

you need to see a tax specialist

Pennywise

skemp1 wrote: »

The company are giving me an interest free loan to buy the shares which I then have to pay back slowly over the years once I own 20% of the company.

You do realise that you'll still have to repay the loan even if the company goes belly up, don't you?

CLAPTON wrote: »

I don't know how to value the shares but one assumes, on a P/e of say 10 to 20 then they are worth up to £1million

Pipe dream territory for a small, owner managed company. More like 3-5 times PBIT due to the far greater risks involved. P/e of 10/20 is usually for public/large companies. I would have thought the value of a 11% shareholding is more like £200k, but still, huge potential for taxation and risks of getting it wrong.

CLAPTON wrote: »

you need to see a tax specialist

Absolutely agree with that. But you also need to see a solicitor re the loan and a business accountant re ensuring you're paying a sensible amount for the shares.

All in all, I don't think they're doing you any favours, whatever the image they portray. You're buying shares at market value and you need to do all the usual due diligence to make sure that you're not digging a hole for yourself.

Even at 20% shareholding level, you can't "force" a dividend as the other shareholders still have full control of the company as you need over 75% to pass a special resolution.

You also have to think of your exit strategy - who will buy your 20% when you want out, especially if the company is going downhill rather than uphill?

I'd say forget tax for the time being until you've done the legals & due diligence. At the very least you need a shareholders agreement to set in stone things like dividend guarantees, directors remuneration, and exit routes.

skemp1

Quite a few issues there to investigate thanks for your comments.

Both owners want to do less and reduce their working hours to 2-3 days a week and they want me to take over the day to day running of the company in the future and go beyond the 20% in the future.

Your right in what you say, we are a small company but we are well established and have been growing every year, even through the recession.

I spoke to one of the bosses and they have taken some legal advice on how to proceed with this and we have been recommended that we use a government approved scheme of some description. Yet to find out what it is called, the barrister is coming in later on today and we are all having a meeting about it.

Pennywise

skemp1 wrote: »

the barrister is coming in later on today and we are all having a meeting about it.

Please use your own solicitor - not wise for the same solicitor to deal with both sides of the transaction as they may be biased in favour of the other party and not acting in your own personal best interests.