Dividends versus PAYE Dividends versus PAYE
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  1. #1

    lbarea

    Guest

    Default Dividends versus PAYE

    Is there *any* advantage to paying oneself dividends over PAYE if you are caught by IR35 (given I am operating under the usual one-man contractor limited company).

    Thanks

  2. #2

    fiddleabout

    Guest

    Default

    Tax on PAYE is due monthly (or quarterly if low enough). Tax on divvis is collected annually in arrears.

    If you can make some interest on Hectors money I'd say it is worth doing Plus, of course, that interest is IR35 free.

  3. #3

    ZZZAAA

    Guest

    Default IR35

    Surely, if caught by IR35 there is no choice, you have to make all payment as PAYE, after allowances? Though maybe there is be scope for a small dividend to pay non-mainstream income such as bank interest and VAT reclaims on purchases?

  4. #4

    Debbie ITAccounting Online

    Guest

    Default Re: IR35

    As far as the Revenue is concerned you only have to pay the Tax and NIC on the "deemed IR35 salary", you do not have to pay the net salary.

    There may be reasons why you don't want to process the full IR35 salary as actual salary, maybe if the company was using the funds to develop the business and build up other income streams (and increasing the possibility of escaping IR35 in the future).

    If you adopt this route and the deemed net salary is taken out in a later tax year it needs to be taken as a dividend not salary. If income that has previously been subject to PAYE / NIC is taken as (actual) salary in a later year it will be subject to PAYE / NIC again.

    If you go this route an election needs to be made (by the company) to avoid the dividends being subject to higher rate tax.

    ITAccounting Online - Truly Interactive Accounting

  5. #5

    ahadayah

    Guest

    Default Re: IR35

    If you take the money out as PAYE and, at a later date, you decide that your earnings for that period were NOT, in fact, IR35 liable, then tough. If you take it out as dividends, then you could (probably?) claim back any IR35 "tax".

  6. #6

    fiddleabout

    Guest

    Default Re: IR35

    Although this is a perfectly valid point (imo) it could also be classed as 'in your dreams'

  7. #7

    Debbie ITAccounting Online

    Guest

    Default Re: IR35


  8. #8

    TinTin

    Guest

    Default PAYE

    My accountant who does not specialise in IT by the way but is aware of IR35 legislation and all that advised me at the time when IR35 was introduced to up my nominal salary to a decent level of say £ 20 k pa and thus avoid the immediate risk of being caught, as seemed likely at the time. The logic was that companies that do a t/o of equal to 2-3 times of total salaries are likely to escape any net, as others with nominal ones.
    This obviously has other advantages as getting bank loans, cards etc on the strength of individual and not company earnings and disadvantages like paying yourself when not earning.

  9. #9

    ZZZAAA

    Guest

    Default IR35

    Regarding Debbie's point - "As far as the Revenue is concerned you only have to pay the Tax and NIC on the deemed IR35 salary, you do not have to pay the net salary"

    Surely it is always advisable to pay the whole salary, if the alternative is to leave it as company money which might attract further taxation in the future? Instead, if the company needs extra funds, pass it money back as a loan from the director, which can be returned in the future without taxation.

    I am not an accountant, so will appreciate correction or comment.

  10. #10

    Simon SJDaccountancy

    Guest

    Default Re: IR35

    Agree totally - we would always advise to pay the whole amount (or at the very least provide for it in your year end accounts). If the Company does need funds then loan them back.

    There would be no further Corporation Tax to pay regardless of whether you left the funds in the Company or not, but there could be potential double tax complications personally.

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