Saving for Self Assessment Tax

brooky_agb

Hi Guys/Gals,

I own a UK Limited company and pay myself approx £5k PAYE per year the rest I take in dividends. Now until now I have saved 25% of all dividends paid to me which I put in a saving account ready for my end of year tax bill.

I don't think that that is the best way to do it as I saved far too much last year. This year I intend to take about £100,000 in dividends and as I'm inexperienced I'm not that sure what the tax implications are as of course there is 40% tax over about £34k I believe. My 25% may not be enough and don't want a scary bill I can't afford. I know the companies corporation tax bill is about 20% of profits which I need to make sure we can afford but I want to save just the right amount so that I have as much deposit as possible for a new property.

Can anyone recommend a good model for saving for personal income tax or share their methods? :A

MoneyMagician

More information is needed on your specific circumstances however broadly speaking once your corporation tax claim is settled and you are in a position to withdraw distributable reserves, broad assuming the following:

• Salary = £5,000
• Net dividend = £100,000
• Other income = £0
• Tax code = 543L
• Tax year = Fiscal Year 2008/2009.

• The gross dividend is £111,111, making your total gross income £116,111
• You are a higher rate tax payer (limit is £36,000). Extra tax is payable on dividends
• £74,672 of your gross dividend income is subject to further tax at 22.5%
• The extra tax to pay is £16,801 (16.8% of net dividend).

Personally, I put 48% of all my privately generated income aside in a separate account as I go on throughout the year to settle and have never had a problem.

Hope this helps.

Money Magician.

brooky_agb

Thanks for your feedback. This is all the income I have aside from tax free ISAs.

So... its looks like 25% is indeed enough so see me through happily?? Maybe I should just continue doing that. I follow your numbers just about.

I'm good at running my company but MY LORD I wish I had a better head for tax and basic maths. LOL

The extra tax after first £36k is only £17k. I thought I would be paying 40% not 22.5%. I apologize if I am being a fool.

TaxGeek

Income tax at 20%/40% for individuals applies to income from employment, self-employed earnings and interest. Dividends are subject to a lower tax rate - 10%/32.5% less the 10% tax credit (ie 0%/22.5%).

brooky_agb

Gotcha thanks. :P

brooky_agb

I believe that it is only a problem if the dividends exceed company profit.