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me and a partner started a ltd company to aviod paying to much tax we were told to pay ourself a divedend instead of a wage can any one confirm this
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Yes by paying a dividend you don't pay any NI on it and as long as you don't go over the �34k tax limit you won't pay any tax either.
Dividends though really need to be paid once or twice a year, or quarterly at the most. You also need to hold a meeting to discuss the dividends and get a dividend voucher issued each time.
HTH
Dividends though really need to be paid once or twice a year, or quarterly at the most. You also need to hold a meeting to discuss the dividends and get a dividend voucher issued each time.
HTH
Gordon, before he cleared off to No.10, increased the tax rate for small businesses to be 20% - the same as the recently reduced basic rate of income tax - also now 20%. So the tax take is the same, but the difference, as misspeedy says, is the NI - which totals about another 20%.
But if you are running a small limited company you are going to have to be prepared to spend some time understanding what the minimum role you have to fulfill as a director, and there is a bunch of extra admin to get your head around associated with accounting for and paying PAYE to HMRC monthly (or quarterly if the amounts are small).
But if you are running a small limited company you are going to have to be prepared to spend some time understanding what the minimum role you have to fulfill as a director, and there is a bunch of extra admin to get your head around associated with accounting for and paying PAYE to HMRC monthly (or quarterly if the amounts are small).
Yes by paying a dividend you don't pay any NI on it and as long as you don't go over the �34k tax limit you won't pay any tax either.
This is totally inaccurate and misleading. If you don't know the answer to questions, please do not reply and give people false advice.
If you pay yourself dividends this is taxable income. You have a personal allowance (usually around �6000) and anything above that is taxed at 10%. Once you earn over �34,800, you will pay dividend tax at 32.5%
This compares to 20% tax rate if you took this income as wages or 40% tax rate over �34,600
This is totally inaccurate and misleading. If you don't know the answer to questions, please do not reply and give people false advice.
If you pay yourself dividends this is taxable income. You have a personal allowance (usually around �6000) and anything above that is taxed at 10%. Once you earn over �34,800, you will pay dividend tax at 32.5%
This compares to 20% tax rate if you took this income as wages or 40% tax rate over �34,600
The company in effect pays the tax on the dividend, not the individual but fundamentally, if you look at the whole thing together the tax liability of taking cash as dividends rather than remuneration is completely unchanged.
Although there is a potential cash flow issue in that any additional tax required on dividends (if you are a higher rate taxpayer) doesn't become payable until many months later depending on the timing of the payment (a dividend paid on 6th April would mean you wouldn't pay the additional tax for almost 22 months) . Had it been paid as remuneration that tax would have been payable immediately.
The main reason people go the dividend route over salary is, as stated above, to avoid the National Insurance which in effect makes a further 20% tax or thereabouts. You do need to watch for IR35 implications as stated though.
Oh, and missspeedy23, you can pay a dividend as often as you like. I have clients who can and do pay monthly dividends. And the next limited company I deal with who actually "hold a meeting to discuss dividends" will be the first one to do so. Most of them don't bother to issue dividend vouchers either though you are right that technically they should. It's hardly a hardship though, Ten minutes on a pc would draw up the first one and 30 seconds a time thereafter would adapt it for every one you pay.
Buildersmate, I don't see why accounting to HMRC for PAYE would necessarily be relevant to be honest? If they have other staff already they will already be doing that and if they don't and are only paying themselves through dividend and not payroll then all it will be is a bunch of nil returns. What there will most likely be is some increased fees to their accountants as the format of limited company accounts needs to be correct and probably means a higher level of staff will be involved in it.
Although there is a potential cash flow issue in that any additional tax required on dividends (if you are a higher rate taxpayer) doesn't become payable until many months later depending on the timing of the payment (a dividend paid on 6th April would mean you wouldn't pay the additional tax for almost 22 months) . Had it been paid as remuneration that tax would have been payable immediately.
The main reason people go the dividend route over salary is, as stated above, to avoid the National Insurance which in effect makes a further 20% tax or thereabouts. You do need to watch for IR35 implications as stated though.
Oh, and missspeedy23, you can pay a dividend as often as you like. I have clients who can and do pay monthly dividends. And the next limited company I deal with who actually "hold a meeting to discuss dividends" will be the first one to do so. Most of them don't bother to issue dividend vouchers either though you are right that technically they should. It's hardly a hardship though, Ten minutes on a pc would draw up the first one and 30 seconds a time thereafter would adapt it for every one you pay.
Buildersmate, I don't see why accounting to HMRC for PAYE would necessarily be relevant to be honest? If they have other staff already they will already be doing that and if they don't and are only paying themselves through dividend and not payroll then all it will be is a bunch of nil returns. What there will most likely be is some increased fees to their accountants as the format of limited company accounts needs to be correct and probably means a higher level of staff will be involved in it.
[Yes by paying a dividend you don't pay any NI on it and as long as you don't go over the �34k tax limit you won't pay any tax either.
This is totally inaccurate and misleading. If you don't know the answer to questions, please do not reply and give people false advice. ]
I am repeating what advice was given to me a couple of weeks ago - the 10% is paid by the company, not the individual - I was talking in terms of the tax he would pay himself. He gets a 10% tax credit anything up to the �34k limit then pays 22.5% above that, taking into account the 10%.
If I have been told incorrectly then I apologise but I asked a similar question and was told this by more than one person!
This is totally inaccurate and misleading. If you don't know the answer to questions, please do not reply and give people false advice. ]
I am repeating what advice was given to me a couple of weeks ago - the 10% is paid by the company, not the individual - I was talking in terms of the tax he would pay himself. He gets a 10% tax credit anything up to the �34k limit then pays 22.5% above that, taking into account the 10%.
If I have been told incorrectly then I apologise but I asked a similar question and was told this by more than one person!
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