Taking dividends instead of salary

Davina40

I was having a chat with a friend who thought it disgusting that people were avoiding tax by using limited companies instead of paye.

I was wondering how true this was so I found a couple of sites to help.

This one tells me that for pay of £70,600 via a limited company the take home pay would be £62k while this one tells me the same pay via straight paye would be £48k.

What a huge difference! Sadly though there's no way for me to do this in my job . Even if my salary was that high .

Lokolo

Yep there are downsides

- No pension
- No sick pay
- No holiday pay
- Less rights than a perm employee

asajj

Mostly contractors use limited companies though and as above there are many downsides to it as well. In addition, if they make a profit, they do pay corporation tax on it. So it is not as black and white as your friend believe.

motorguy

Davina40 wrote: »

I was having a chat with a friend who thought it disgusting that people were avoiding tax by using limited companies instead of paye.

I was wondering how true this was so I found a couple of sites to help.

This one tells me that for pay of £70,600 via a limited company the take home pay would be £62k while this one tells me the same pay via straight paye would be £48k.

What a huge difference! Sadly though there's no way for me to do this in my job . Even if my salary was that high .

Its not as straightforward as that. If you're a contractor and working for a company its most likely you're going to fall foul of IR35 legislation and have to pay tax at PAYE rates.

If your friend wants to feel disgusted about tax avoidance, i suggest she takes a look into Amazon, Starbucks, etc. OR looks in to how the banks cocked up but we as taxpayers had to bail THEM out.

I'm an IT Contractor, and yes the rates are great, but there are down times. I'm between contracts at the min, so no revenue coming in. Plus i dont get paid sick days, or annual leave.

Maybe your friend really needs to see the bigger picture.

motorguy

asajj wrote: »

Mostly contractors use limited companies though and as above there are many downsides to it as well. In addition, if they make a profit, they do pay corporation tax on it. So it is not as black and white as your friend believe.

Indeed.

If i take a dividend from the company, then the company pays 20% tax on it.