Max Dividend If No Salary Taken 2015/16

**northernladuk** · 31 July 2015, 15:51

If you aren't going to ask your accountant then why not try find a calculator to help you?

Maybe like this one?

http://www.brighton-accountants.com/...dividends-tax/

or

https://www.nixonwilliams.com/dividend_calculator.asp

Might want to check the new dividend rates if they are applicable though. CBA to find out if this link is valid. Am sure you can do that.

**ASB** · 1 August 2015, 08:28

If you are not taking a salary this is inefficient because you are ot using your personal allowance. Use it or lose it.

This makes me think that you allowance may be used elsewhere. Though you say not.

If it is this then feeds into the calculation of how much divi would take you into the higher rate bands.

I cant think of a situation where not paying a salary if there is no other income using the allowances would be beneficial. Though the personal tax position is similar - none to pay until higher rate reached - the company position isnt. Ct relief would be obtained on the salary paid.

however if the company is outside the uk regime for some reason the situation could be different.

**malvolio** · 1 August 2015, 08:53

Originally posted by ASB View Post

If you are not taking a salary this is inefficient because you are ot using your personal allowance. Use it or lose it.

So dividend income isn't liable for Income Tax then...?

**ASB** · 1 August 2015, 09:16

Originally posted by malvolio View Post

So dividend income isn't liable for Income Tax then...?

Tuliped the bed as usual mal?

I did not imply in any way that dividends are not subject to income tax.

What I did state - which an intelligent gent like yourself is of course aware of - is that not having income to allocate against ones personal allowance (ie nil rate band) is inefficient. Dividend income does not, as you are doubtless aware, fulfil this criteria.

**malvolio** · 1 August 2015, 10:52

Originally posted by ASB View Post

Tuliped the bed as usual mal?

I did not imply in any way that dividends are not subject to income tax.

What I did state - which an intelligent gent like yourself is of course aware of - is that not having income to allocate against ones personal allowance (ie nil rate band) is inefficient. Dividend income does not, as you are doubtless aware, fulfil this criteria.

Yes, I am, but the OP may not be.

We also shouldn't assume the OP fully understands the break at the higher rate.

**ASB** · 1 August 2015, 11:44

Originally posted by malvolio View Post

Yes, I am, but the OP may not be.

We also shouldn't assume the OP fully understands the break at the higher rate.

Quite true. Though he clearly understands some aspects, ie that therr is a limit before they get the privilege of paying some higher rate tax.

I am not sure they realise the impact of not using their nil rate band hence my pointer that some salary may well be more efficient overall.

Equally we dont know their full circumstances. Hence my comments about salary. There may potentially be an overall 2k saving on tax possible.

**WordIsBond** · 1 August 2015, 15:14

I don't know the reasons OP has for not taking salary. The simple answer to the question asked is £38147.

Salary of £8060 can be taken without any NI or income tax. This is much preferable from a tax perspective. Salary is not "grossed up" like dividend is, so the £8060 only takes £8060 out of your personal allowance. As a result, if you take £8060 in salary, you can take £30893 in net dividend, for a total take of £30953 (edit: oops, £38953). If you file for employment allowance (not permitted for one man bands from April 2016, but still available this year), it may be better for you to take £10600 in salary.

Salary also has the benefit of being a company expense, thus reducing your corporation tax. If you are still contracting, this allows you to take £8060 (or £10600) off of your profit, reducing CT by 20% of that amount. Even if you are not contracting, you can take it as a corporate loss and carry it back to last year, reducing last year's CT, if you had profit last year. If you had no profit last year, you can still take it as a loss and carry the loss forward, if you expect to contract again in future. (I think you are only allowed to carry it back one year.)

That means in almost every case, there is a significant tax advantage in paying yourself at least £8060 in salary (the difference between paying £8060 or £10600 with employment allowance is small). The only case, AFAIK, in which the difference isn't significant is if you aren't contracting any longer, don't expect to in future, and had no profit in the prior year, either. In that case, there are no corporation tax ramifications, and the only difference comes in that you can take a little more out without hitting the higher rate threshold, because salary isn't grossed up like dividends.

If that all seems complicated, you also need to figure in how much income you have from interest on savings or anything else. That can change the whole picture. And there's also the chance I might have got some of this wrong -- I certainly don't know all the rules on carryback/carry forward of losses. So hopefully, I've given enough information to convince you this is not entirely straightforward and you really should take accountant's advice.

**Crossroads** · 1 August 2015, 16:36

Related to this, I've just crunched some numbers relevant to my situation, where I have other (property rental) income that uses up all my personal allowance but less than the 40% threshold.

If I've got it right, then in this scenario it is better to not take a salary.

This does incur a higher CT bill and the overall tax amount paid (i.e. CT plus my personal tax bill) is the same, however it is preferable this was around as I have a smaller personal tax bill, the end result being I have more of my £42385 in my pocket (£806 more).

Any thoughts on this?

**northernladuk** · 1 August 2015, 18:27

Yep. I was thinking it would be good to know what your accountant said.

Max Dividend If No Salary Taken 2015/16