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Being tax efficient

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    Being tax efficient

    Hello,
    I have a question I would like to ask around being tax efficient, as I am not sure I am currently getting good advice from my accountant.

    Scenario
    2 directors (married) of a company
    Company turns over 130k per year
    If we wanted to take the most we can out of the company in a full tax year what would be the recommendation to achieve this through a combination of paye and dividends?
    Company expenses are around 10k per year on average.

    Thanks in advance
    j

    #2
    Is that what your accountant is suggesting or what you feel you need to do?
    'CUK forum personality of 2011 - Winner - Yes really!!!!

    Comment


      #3
      Whatever you earn is taxable income, be it salary or dividends. You are actually asking about NICs.

      However, this is a "how long is a piece of string" question. You can take it all out after expenses and CT and PAYE/NICs and VAT are covered off - which would be stupid - or you can take none of it, or anything in between.

      How much do you need is the first question, then take salary of £10k and divi the rest up to the upper earnings limit and if you need more accept you'll be paying 25% PAYE on it.

      Ignore tax as a driver. You work to live.
      Blog? What blog...?

      Comment


        #4
        Presumably you mean without paying higher rate tax? You can each earn £41865 pa without paying higher rate tax. However, how much you can pay in dividends depends on share structure and your salary limit. Let's say it's £10k, then YOU have £31865 left in your basic rate band. Netted down, that's £28678. If your shares are 50/50, then that represents 50% of the total company divi, with your wife getting the other 50%. So, in total £67,357. Anything withdrawn above this from the company will attract an additional 25% tax. If you absolutely want to avoid higher rate tax that's your lot. You could pension up, or leave the rest in for bench time, or extract as capital later on and pay only 10% additional by claiming ER. (Assumes no other income and is very simplistic.)

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          #5
          If you go down this route make sure your accountant explains exactly how this works so you can understand the risk. Different accountants suggest different things around this, don't do it, different share splits so understand why before you make your decision. Also ask about legislation around splitting divis. It's not as straightforward as giving shares to your wife to avoid tax.
          'CUK forum personality of 2011 - Winner - Yes really!!!!

          Comment


            #6
            £681 each a month and £30k each a year in dividends. Isn't that the way to do it?
            http://www.cih.org/news-article/disp...housing_market

            Comment


              #7
              Originally posted by northernladuk View Post
              If you go down this route make sure your accountant explains exactly how this works so you can understand the risk. Different accountants suggest different things around this, don't do it, different share splits so understand why before you make your decision. Also ask about legislation around splitting divis. It's not as straightforward as giving shares to your wife to avoid tax.
              This is very good advice. You must ensure you are informed and understand the advice you get/act upon.
              Last edited by Contractor UK; 8 October 2014, 08:32. Reason: No advertising

              Comment


                #8
                Originally posted by PurpleGorilla View Post
                £681 each a month and £30k each a year in dividends. Isn't that the way to do it?
                Near enough I guess. But for the salary to be allowable, it needs to be earned, whereas the divi doesn't.
                Last edited by Contractor UK; 8 October 2014, 08:32. Reason: No advertising

                Comment


                  #9
                  [QUOTE=Alan @ BroomeAffinity;2004496]Near enough I guess. But for the salary to be allowable, it needs to be earned, whereas the divi doesn't.




                  And there are certain rules about gifting shares and the like to be mindful off, which most people that do this aren't.
                  Last edited by Contractor UK; 8 October 2014, 08:33.
                  'CUK forum personality of 2011 - Winner - Yes really!!!!

                  Comment


                    #10
                    [QUOTE=Alan @ BroomeAffinity;2004495]This is very good advice. You must ensure you are informed and understand the advice you get/act upon.


                    There is also some advice on this page you might want to look at as well Alan..

                    Bulletin Board Terms and Conditions :: Contractor UK

                    Check out number 6
                    6. No advertising or marketing of any kind, including non-profit organisations, not even subtle stuff, ever. Please use your company name as a user name to identify yourself when offering unbiased, expert advice only. We will not accept any "hard sell" on your services or products within posts or touting for business via private message (PM). No URLs, contact details or sales spiel on sigs either.
                    Last edited by Contractor UK; 8 October 2014, 08:36.
                    'CUK forum personality of 2011 - Winner - Yes really!!!!

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