Salary and dividend tax rate

asdute

Hi
My partner started limited company last month. He will be paying him self around £600 a month salary. My question is what would be tax rate on dividends lets say he will take 30000 a year in dividends ( not a lump sum). Company is construction industry.
thanks

agrinnall

Surely before starting a limited company would have been the time to ask these questions?

Can't be bothered to do the research for you, but you can read about corporation tax here

http://www.hmrc.gov.uk/ct/index.htm

SuperHan

agrinnall wrote: »

Surely before starting a limited company would have been the time to ask these questions?

Not really?

Perhaps he's set up a Limited company so now he is not personally liable for the actions taken by the company, which is sensible for a construction worker.

Now he wants to know how to be tax efficient about his salary... It's a logical step...

00ec25

http://lmgtfy.com/?q=tax+on+dividends

if you can't understand it feel feel to ask more questions,
if you can't be bothered to look up basic facts and figures then feel free to help yourself first

asdute

Thank you all.
well still if he pays him self dividends ( from profit ... after corporation tax, expenses and so on ) is 20% tax rate? I have been told that my accountant, but i have heard that it is lower rate 10% that why I am confused.com

00ec25

asdute wrote: »

Thank you all.
well still if he pays him self dividends ( from profit ... after corporation tax, expenses and so on ) is 20% tax rate? I have been told that my accountant, but i have heard that it is lower rate 10% that why I am confused.com

go read the link then you will know rather than hear...
http://taxaid.org.uk/info/taxation-of-savings/taxing-dividends

trailingspouse

Up to £32,000 per annum you only pay 10%. You also get 10% tax credit, so the two cancel each other out. Which is nice.

Not sure why the other posters are being secretive about it.

The company pays corporation tax on profits, obviously, (and the money paid as dividends is counted as profit), so effectively you've already paid 20% on the money you receive as dividends.

If your accountant says you pay 20% on dividends, I think it's time to find another accountant.

jimmo

You seem to be confused by two different things, corporation tax and tax on dividends.
The company is liable to corporation tax at 20% on its profits. The company has to pay that 20% tax
When it pays dividends, the company does so out of its taxed profits so paying a dividend will not reduce the company’s corporation tax bill.
Tax on dividends is rather strange because, for non higher rate taxpayers, they are chargeable to income tax at 10% but they carry a tax credit of 10%.
In your partner’s apparent situation the dividends are tax neutral so the bottom line is:
Your partner’s salary of £600 per month means that he pays no Income Tax or National Insurance on his wages but he still qualifies for National Insurance credits towards his State Pension.
Your partner’s liability to Income Tax on the dividends is satisfied by the tax credits attached to them.
The company remains liable to 20% corporation tax on its profits.

00ec25

trailingspouse wrote: »

Not sure why the other posters are being secretive about it.

because where a fact based question is asked rather than a comprehension based question and the poster has not made any effort themselves to look, then I believe, like school teachers of old, that a student should find out by doing, not by being spoon fed

granted the HMRC page is the number 1 result and is errr an HMRC page, but the tax aid page is the second result and is very readable as to what is the tax rate on dividends for both a basic and higher rate payer.

that is the factual answer, if a supplemental question was then asked about balancing the £7,200 pa salary and the £30,000 pa dividend so as to reduce overall tax that would be a question where help may be needed as it is not simply a look up

pleasedelete

With that expected dividend rate he will probably be pushing into VAT as well assuming reasonable expenses. £30,000 dividend would be very roughly £38,000 profit before tax- add on £7200 salary to 45K and then business operating costs/fees/legal return costs/insurance policy,indemnity, travel, accountants, payroll costs etc. Turnover possibly be at least £60k and maybe over £79k sector/expenses vary such a lot-lots of materials I imagine in construction


If he moved to dividend from PAYE mid year he may well be paying a lot more tax on dividends to begin with but from april 2014 the models outlined in the posts above will work. Try and avoid any dividend this tax year if salary is already at higher tax rate region.

asdute

well i done my research and I was sure it is 10% on dividends I know corporation tax is 20%. But when i called his accountant she said "I don't know where you get this 10% it is 20%". He can take money out when he wants and at the end of the year we will figure out which way is the best for him tax wise"

I don't think HMRC will like this (taking money out of the business account when you feel like)
I am AAT student myself (haven't done business tax yet) but things like she said I find unacceptable.
Can you advise how much accountants(not cowboys) charge for limited company
thanks