With the new announcement of
a) change to dividend tax
b) change to the NIC Employment Allowance
(as detailed here Summer Budget 2015 denounced as 'bad' for contractors :: Contractor UK)
its started me wondering if low salary and large dividends are still the most tax efficient?
The dividend tax change now means that only £5k is taxed at 20% (corp tax) and the rest upto the upper tax bracket at 27.5% (20% CT + 7.5% new dividend tax).
This still seems to be lower than 32% (20% IT + 12% Employees NIC) if pay above NIC primary threshold (the Employers NIC being soaked up by the NIC Employment Allowance), but has added in an additional 7.5% on a proportion of dividends.
For me, continuing to pay via dividends works out at about an additional £4500/yr in tax
As there are 2 directors in my company, I was trying to think of some options. The NIC Employment Allowance is being removed for 1 man director companies, but would this apply if you have 2 directors?
Should it still be possible for us to claim this, then we could make use of this. Currently only one director is paid salary as the other director had a separate job. The other job had pay over the annual allowance, so if a salary was paid by our company, 20% IT would be paid, which at the time was equivalent to the 20% CT on dividends. As dividends were less paperwork than PAYE, we didn't explore this further.
However, I believe you have a separate NIC allowance per job, as opposed to IT allowances were salaries are combined and one allowance is applied. Therefore should we pay a company salary up to the primary threshold and not to take the sum of the two salaries above the basic rate band, then this would be taxed at 20% IT. This would then save some of the additional 7.5% from the additional dividend tax.
Is my understanding correct? are there any flaws? are there any other ways around these tax changes?
Thanks
a) change to dividend tax
b) change to the NIC Employment Allowance
(as detailed here Summer Budget 2015 denounced as 'bad' for contractors :: Contractor UK)
its started me wondering if low salary and large dividends are still the most tax efficient?
The dividend tax change now means that only £5k is taxed at 20% (corp tax) and the rest upto the upper tax bracket at 27.5% (20% CT + 7.5% new dividend tax).
This still seems to be lower than 32% (20% IT + 12% Employees NIC) if pay above NIC primary threshold (the Employers NIC being soaked up by the NIC Employment Allowance), but has added in an additional 7.5% on a proportion of dividends.
For me, continuing to pay via dividends works out at about an additional £4500/yr in tax
As there are 2 directors in my company, I was trying to think of some options. The NIC Employment Allowance is being removed for 1 man director companies, but would this apply if you have 2 directors?
Should it still be possible for us to claim this, then we could make use of this. Currently only one director is paid salary as the other director had a separate job. The other job had pay over the annual allowance, so if a salary was paid by our company, 20% IT would be paid, which at the time was equivalent to the 20% CT on dividends. As dividends were less paperwork than PAYE, we didn't explore this further.
However, I believe you have a separate NIC allowance per job, as opposed to IT allowances were salaries are combined and one allowance is applied. Therefore should we pay a company salary up to the primary threshold and not to take the sum of the two salaries above the basic rate band, then this would be taxed at 20% IT. This would then save some of the additional 7.5% from the additional dividend tax.
Is my understanding correct? are there any flaws? are there any other ways around these tax changes?
Thanks
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