National Insurance on dividend earning

AJ71

From my main job I get gross £70000 a year. I understand I am paying 12% NI contribution for income £7956-£41865, and 2% for income £41865-£70000 per annum.

This year I have got a dividend from my limited company and this is £10000. My accountant is saying I should pay £10000 x 12%= £1200.

My argument is that I should pay £10000x 2%=£200 as my additional earning of £10000 as dividend should add to £70000 earning and this should be calculated at 2% rate(over £41865) , not 12%.

The accountant says that his system does not allow him to do it and he has no knowledge of how if can reclaim overpayment on NI contributions.

By the way, this has just happened in January 15.

Can someone help me with some information please?

Thanks in advance.

General_Grant

AJ71 wrote: »

From my main job I get gross £70000 a year. I understand I am paying 12% NI contribution for income £7956-£41865, and 2% for income £41865-£70000 per annum.

This year I have got a dividend from my limited company and this is £10000. My accountant is saying I should pay £10000 x 12%= £1200.

My argument is that I should pay £10000x 2%=£200 as my additional earning of £10000 as dividend should add to £70000 earning and this should be calculated at 2% rate(over £41865) , not 12%.

The accountant says that his system does not allow him to do it and he has no knowledge of how if can reclaim overpayment on NI contributions.

By the way, this has just happened in January 15.

Can someone help me with some information please?

Thanks in advance.

I don't think you should be paying any NI whatsoever on a dividend payment. Self-employed people often use a private limited company as a vehicle to avoid paying some NI (a tax by another name) by taking some income as a dividend rather than salary.

Your dividend income will need to be reported on your self-assessment return. Is your accountant working on that?

AJ71

General_Grant wrote: »

I don't think you should be paying any NI whatsoever on a dividend payment. Self-employed people often use a private limited company as a vehicle to avoid paying some NI (a tax by another name) by taking some income as a dividend rather than salary.

Your dividend income will need to be reported on your self-assessment return. Is your accountant working on that?

I forgot to mention he calculated the NI in self assessment done in January. He says that this dividend is added to my total income so I should pay NI.

CLAPTON

do you take a salary from your limited company?
is he a real accountant and not just a mate?

LittleVoice

AJ71 wrote: »

I forgot to mention he calculated the NI in self assessment done in January. He says that this dividend is added to my total income so I should pay NI.

What sort of accountant is he? Is he actually qualified (even "by experience") for this type of work?


Of course the dividend is added to your total income when calculating your taxable income but NI is not paid on it.


Neither here nor there but, just because I'm inquisitive, what sort of work do you do that pays you £70,000?


How is he showing the payment of NI?


Presumably the form was actually submitted by the 31 January deadline. HMRC should sort it out eventually.


If it is really the case that your "accountant" claims that National Insurance should be deducted and that he doesn't know about reclaiming NI paid in error, then get a proper person to look after your affairs in future.

purdyoaten

I answered your question yesterday on NI your second job and my advice today is to get a new accountant. He/she clearly has no clue!

Dividends are not liable to NIC. They should not be added to salary. You will have to pay higher rate tax on them but the SA will work that out - but not if they have been included in salary.

TheCyclingProgrammer

AJ71 wrote: »

I forgot to mention he calculated the NI in self assessment done in January. He says that this dividend is added to my total income so I should pay NI.

Your accountant is clueless. Has he told you what the tax to pay is on the dividend? It should be £2500 on the £10k as you're a higher rate payer and the effective rate of tax on dividends at the higher rate is 25% of the net amount (i.e. net of the 10% tax credit).

There is no NI on dividends.

As purdyoaten says, if the dividends are showing a NI liability because he has entered it as employment income on top of your salary, then the tax calculation will be wrong too as the tax rates are different!

pjread

Please tell me you've fired the accountant. Are they qualified? I didn't think ACCA gave out certs in cornflake boxes

agrinnall

I can only agree with everyone else that your accountant is an idiot. I would suggest that you take your business elsewhere and get a real accountant to check whatever the current one has done since you started using him - he's clearly got this wrong so who knows what else he has messed up? And if he's a member of a professional body, report him.

purdyoaten

TheCyclingProgrammer wrote: »

Your accountant is clueless. Has he told you what the tax to pay is on the dividend? It should be £2500 on the £10k as you're a higher rate payer and the effective rate of tax on dividends at the higher rate is 25% of the net amount (i.e. net of the 10% tax credit).

There is no NI on dividends.

As purdyoaten says, if the dividends are showing a NI liability because he has entered it as employment income on top of your salary, then the tax calculation will be wrong too as the tax rates are different!

Just a thought - the SA calculation would not calculate a liability to NIC if included in employment income - unless it has somehow been classed as self-employed income. This does beg the question - where has it been entered?

AJ71

Thank you guys for your replies.I should have been careful appointing my accountant. Definitely, I have been badly served and advised by my accountant. I am after a new accountant. Your answers have been thousand times better than what I received by giving money.