Tax on Dividends

klaus

Thanks, Conversely if you get a low salary but maximise dividends below the limit, that would keep you in the lower band?

Lokolo wrote: »

The % tax rates are different for the different sources (income tax or dividend tax), but the bands are the same and combined.

So if you have a high paying job where you pay 40% tax on your income, the dividends you get will be at the 32.5% rate (which is the equivalent band 'Higher Rate'), even if they are say, £5k.

Lokolo

klaus wrote: »

Thanks, Conversely if you get a low salary but maximise dividends below the limit, that would keep you in the lower band?

As long as the total is below the limit.

If it takes you to the next band, you will pay higher rate on the partial amount that takes you beyond it.

klaus

excellent, thanks everyone, all this stuff is so much more complicated than self employed tax..

westy22

klaus wrote: »

Thanks, Conversely if you get a low salary but maximise dividends below the limit, that would keep you in the lower band?

That is the key factor - many business owners will try and reduce the salary taken to the minimum required to gain NI credit but not actually pay NI or PAYE. In 2013-14 this figure is £7,696.

They then take dividends for their remaining income up to a ceiling of £32,010. Provided, of course, that you have sufficient post-tax profits in the company.

Then, on top of this, get the company to pay an employer's contribution into your pension fund - this puts money into your pension for the future and also reduces the company's CT bill.

This is the most tax efficient way to get money out of your company.

klaus

Great, thanks again, that sounds like the way to go.

westy22 wrote: »

That is the key factor - many business owners will try and reduce the salary taken to the minimum required to gain NI credit but not actually pay NI or PAYE. In 2013-14 this figure is £7,696.

They then take dividends for their remaining income up to a ceiling of £32,010. Provided, of course, that you have sufficient post-tax profits in the company.

Then, on top of this, get the company to pay an employer's contribution into your pension fund - this puts money into your pension for the future and also reduces the company's CT bill.

This is the most tax efficient way to get money out of your company.

jimjames

klaus wrote: »

excellent, thanks everyone, all this stuff is so much more complicated than self employed tax..

As good as the information here is you might find it beneficial to get professional advice. There is only so much that you can get from a internet forum when it relates to your personal circumstances and tax situation

Lansdowne

jimjames wrote: »

As good as the information here is you might find it beneficial to get professional advice. There is only so much that you can get from a internet forum when it relates to your personal circumstances and tax situation

Exactly. Presumably Klaus received professional advice to form a limited co, so the tax implications should have been gone through then.