Sharing personal allowance, dividends, salary

Johncarr87

Hi Again,

Another question i have is;
I will be paying myself a mixture of salary and dividends of £20k per annum.
I am in the process of getting back with an ex partner who i have a child with who she is claiming income support and child benefit..
As i will not be able to support us as a family on £20k and pay for 2 mortgages, we have discussed to split my personal allowance to avoid paying too much tax and for her to come off income support benefits.

I want to pay NI contributions, partner pay her minimum until she does not have to pay NI or Tax.

Any ideas?
I understand i cannot take dividends until profits have been made etc, so to pay using a directors loan and pay this back with dividends once company has turned profits.

Newbie here all advice needed

Thanks :T

Darksparkle

Johncarr87 wrote: »

Hi Again,

Another question i have is;
I will be paying myself a mixture of salary and dividends of £20k per annum.
I am in the process of getting back with an ex partner who i have a child with who she is claiming income support and child benefit..
As i will not be able to support us as a family on £20k and pay for 2 mortgages, we have discussed to split my personal allowance to avoid paying too much tax and for her to come off income support benefits.

I want to pay NI contributions, partner pay her minimum until she does not have to pay NI or Tax.

Any ideas?
I understand i cannot take dividends until profits have been made etc, so to pay using a directors loan and pay this back with dividends once company has turned profits.

Newbie here all advice needed

Thanks :T

She'd have to come off income support anyway as she won't be a lone parent.

She should already be claiming tax credits though which she would still get (but as a joint claim) on a household income of £20,000.

Not sure what you mean by splitting your personal allowance, your personal allowance is yours, hers is hers. You wouldnt qualify for marriage allowance to use some of her personal allowance.

Depending on how you are splitting your pay/dividends you might not have much tax to pay.

Johncarr87

My personall tax allowance - £10,600 before paying tax hers will be the same minus any benefits wont it?

If i can give her a job with minimum hours etc, low enough to not trigger any pensions, NI or tax.

Has anyone else had any similar scenarios they can share?
This is only option i may have as i can not afford to provide for her and her outgoings

Darksparkle

Johncarr87 wrote: »

My personall tax allowance - £10,600 before paying tax hers will be the same minus any benefits wont it?

If i can give her a job with minimum hours etc, low enough to not trigger any pensions, NI or tax.

Has anyone else had any similar scenarios they can share?
This is only option i may have as i can not afford to provide for her and her outgoings

You wouldn't be sharing your personal allowance. You would have your allowance of £10,600 and she'd have hers.

Child benefit and tax credits aren't taxable so wouldnt reduce the amount she could earn before tax would be due, she'd still have a £10,600 personal allowance.

Any income she does have would potential reduce her tax credits though as it would be based on total household income.

If you do employ her you'll need to make sure you fulfil your duties as an employer - https://www.gov.uk/register-employer

Can your company afford to take on an employee?

Johncarr87

My wage will be £20k per year. If i can share my wage with her and pay her, for an example £6000 and myself the remaining £14000.
There wont be any major expenses and could i put her on a zero hour contract?
If i will only be paying her minimun so no NI or Tax i cant see much of a problem.

Darksparkle

Johncarr87 wrote: »

My wage will be £20k per year. If i can share my wage with her and pay her, for an example £6000 and myself the remaining £14000.
There wont be any major expenses and could i put her on a zero hour contract?
If i will only be paying her minimun so no NI or Tax i cant see much of a problem.

Is the £20,000 a mixture of wages/dividends? It makes a difference. Eg if you paid yourself £10,000 wage and £10,000 dividend (gross) then you'd pay no tax and only £232 NIC.

You can't just pay her for nothing just to reduce your tax. She needs to be genuinely employed.

However as a company director you can pay yourself whatever you want as long as you report it correctly and the company can afford it.

If you are genuinely employing her then you need to make sure you do so correctly including reporting her earnings through PAYE, keeping a record of hours worked to ensure you comply with NMW, give payslips etc.

What you call the contract really doesn't matter. If you pay her £6000 you need to be able to show why you've paid her that. From April 2016, living wage for 25 year olds and over will be £7.20 per hour so you'd need to prove at least 16hrs of work.

Johncarr87

Yes, the 20k will be a mixture of wage and dividends.
Do you have to pay any tax on paying yourself £10k dividends? I thought you had a £5k allowance then had to pay tax on the rest..
If she earns little enough she can also claim working tax credits.
I would go to the effort to employing her properly giving her a contract etc and she would be my interior designer which woukd benefit me, as being a man i would paint everything magnolia and white.

Darksparkle

Johncarr87 wrote: »

Yes, the 20k will be a mixture of wage and dividends.
Do you have to pay any tax on paying yourself £10k dividends? I thought you had a £5k allowance then had to pay tax on the rest..
If she earns little enough she can also claim working tax credits.
I would go to the effort to employing her properly giving her a contract etc and she would be my interior designer which woukd benefit me, as being a man i would paint everything magnolia and white.

Currently you only have additional tax to pay if you are higher or additional rate - https://www.gov.uk/tax-on-dividends/overview

Rules will change in April - http://www.itcontracting.com/new-dividend-tax-april-2016/

You could have a £11,000 wage and £5,000 dividend and not pay any tax.

On a household income of £20,000 you wouldn't get working tax credits, only child tax credits.

booksurr

Johncarr87 wrote: »

I would go to the effort to employing her properly giving her a contract etc and she would be my interior designer which woukd benefit me, as being a man i would paint everything magnolia and white.

Johncarr87 wrote: »

My wage will be £20k per year. If i can share my wage with her and pay her, for an example £6000 and myself the remaining £14000.

as stated, any work she does for the business must be real documented work and should be proportionate with the pay given her. You paying her 30% of the gross turnover for a zero hours contract doing "something" is rather unconvincing.

as darksparkle has explained, from April 16, onwards when the dividend rule changes, you could pay yourself a salary of the income tax personal allowance £11,000 plus the £5,000 tax free dividend amount leaving you with 4,000 of profit still available

if you can show she is genuinely doing £4,000 of work for you then by all means pay her that much. If you cannot, then consider making her a shareholder and paying her a dividend instead. (subject to the stamp duty implications on gifting her the shares of course)