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Salary / Dividend Tax

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    Salary / Dividend Tax

    Hey Guys,

    Quick question, I think I know the answer.. but can't seem to find confirmation online.

    If one has a full time job with Company A, and is the sole director of Ltd Company B, does the dividend tax on withdrawals take into consideration the salary from being an FTE in Company A?

    As an example;

    Salary at company A: 100k
    Salary as Director of Company B: 0.00
    Dividends from Company B: 15k

    Tax on dividends: 4,225
    2k tax free, then 28.2% tax on 13k

    If I'm correct, is there a better way of drawing down dividends?

    #2
    Sure, your total income is factored. Dividends are the top slice of income.

    Comment


      #3
      And, no, there is no particular magic, other than pension contributions or retaining profits and eventually taking a capital distribution on closure.

      Comment


        #4
        Can dividends be paid to one director but not another? Perhaps the wife being a director of the ltd company, and her basic salary elsewhere being in a lower bracket? Could she receive dividends at a lower tax rate?

        Comment


          #5
          Originally posted by JonButterworth View Post
          Can dividends be paid to one director but not another? Perhaps the wife being a director of the ltd company, and her basic salary elsewhere being in a lower bracket? Could she receive dividends at a lower tax rate?
          Dividends are paid to Shareholders, not Directors (unless they are Shareholders, too).
          I was an IPSE Consultative Council Member, until the BoD abolished it. I am not an IPSE Member, since they have no longer have any relevance to me, as an IT Contractor. Read my lips...I recommend QDOS for ALL your Insurance requirements (Contact me for a referral code).

          Comment


            #6
            Originally posted by Scruff View Post
            Dividends are paid to Shareholders, not Directors (unless they are Shareholders, too).
            Of course, I meant if the wife were a director of the company and held 50% of the shares. I think that's a fairly common occurrence when contracting through a ltd company, no?

            Comment


              #7
              Originally posted by JonButterworth View Post
              Of course, I meant if the wife were a director of the company and held 50% of the shares. I think that's a fairly common occurrence when contracting through a ltd company, no?
              I think you know the answer to this (or should). Yes, of course they are entitled to dividend distributions, subject to the shares being of an ordinary class with full capital rights. Salary needs more care, subject to their involvement with the business.

              Comment


                #8
                Originally posted by jamesbrown View Post
                I think you know the answer to this (or should). Yes, of course they are entitled to dividend distributions, subject to the shares being of an ordinary class with full capital rights. Salary needs more care, subject to their involvement with the business.
                You're right, I know that they would be entitled to dividends. But I remember reading somewhere that dividends need to be equally distributed (if equal share ownership), and thus if I were to own 50% of the company and the wife were to own 50% of the company, I couldn't pay her dividends and not myslef?

                Comment


                  #9
                  Originally posted by JonButterworth View Post
                  You're right, I know that they would be entitled to dividends. But I remember reading somewhere that dividends need to be equally distributed (if equal share ownership), and thus if I were to own 50% of the company and the wife were to own 50% of the company, I couldn't pay her dividends and not myslef?
                  On the evidence to date, perhaps read some more...

                  Anyway. Dividends are paid in proportion to shares held - if you had 80% of the issued shares and your wife have the other 20%, you get £8000 and she gets £2000 of a £10k payment. Or any other ratio you fancy.

                  There are mechanisms for differential dividend payment. Don't go there.
                  Blog? What blog...?

                  Comment


                    #10
                    Originally posted by malvolio View Post
                    On the evidence to date, perhaps read some more...

                    Anyway. Dividends are paid in proportion to shares held - if you had 80% of the issued shares and your wife have the other 20%, you get £8000 and she gets £2000 of a £10k payment. Or any other ratio you fancy.

                    There are mechanisms for differential dividend payment. Don't go there.
                    Umm, that's pretty much exactly what I said that I'd assumed. So I do understand it correctly. If it's 50/50 split then the dividends should be split 50/50.

                    So, the only way to save some tax would be if she owned 90% and whatever dividend pot was issued out, I'd only get 10% of it and pay higher tax on 10% with her paying lower tax on 90%.

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