Dividend tax limit

[WordIsBond]

Ignoring any NIC calculations, the income tax would be £400 yes. The CT saving would be £380 so you'd lose £20 which I guess is immaterial. In the OP scenario, if swapping a £2k dividend for a £2k salary, the tax would be essentially the same but the overall net income would drop by about £240.

For your employee, I'm not sure what the best solution would be. If the £2k is front loaded in one month, there will be EE NIC of approx. £150 so they'd have a net pay of £1,850.

Just to add to the OP, if they received child benefit, then consider whether you want to take a dividend higher than £2k as this would then affect what you repay back as a higher child benefit charge as you'll show income over £50k.

Thanks Craig. Hadn't thought through the NIC factor very well, and should have. It's a moot point for us.

[Manic]

I was wrong

[TheCyclingProgrammer]

You can't choose to allocate your PA against dividend income.

Yes you can, as Craig outlined. Taxpayers are allowed to use their personal allowance in whichever way is most beneficial to them.

Personal Allowances and Dividend Income

Allocating £2k of your personal allowance to dividends doesn't change the order in which they are taxed - they are still taxed as the top slice of income and the extra £2k does still sit above the higher rate threshold, but because you've allocated £2k of your personal allowance to the first £2k, that £2k above the higher rate threshold now becomes the first £2k of taxable dividends and is therefore covered by the £2k dividend allowance.

Whether or not HMRC's own self-assessment software now does this automatically for you I do not know.

Edit: from the horse's mouth, example 6:
Dividend Allowance factsheet - GOV.UK

[DeludedKitten]

[Manic]

Yes you can, as Craig outlined. Taxpayers are allowed to use their personal allowance in whichever way is most beneficial to them.

Personal Allowances and Dividend Income

Allocating £2k of your personal allowance to dividends doesn't change the order in which they are taxed - they are still taxed as the top slice of income and the extra £2k does still sit above the higher rate threshold, but because you've allocated £2k of your personal allowance to the first £2k, that £2k above the higher rate threshold now becomes the first £2k of taxable dividends and is therefore covered by the £2k dividend allowance.

Whether or not HMRC's own self-assessment software now does this automatically for you I do not know.

Edit: from the horse's mouth, example 6:
Dividend Allowance factsheet - GOV.UK

Well blimey, every day is a school day. That is well hidden away in the gov site and I can't find any reference to it anywhere.