Dividends Tax

[nc1]

Hi all, very new to contracting however was not informed about the tax added to dividends once taken out of my Ltd. its seems a lot and will really cut in what i though was "taking home!"

I have a meeting scheduled with the accountant but i was wondering is there a more tax efficient way of extracting the cash.

Thanks in advance.

[stek]

Hi all, very new to contracting however was not informed about the tax added to dividends once taken out of my Ltd. its seems a lot and will really cut in what i though was "taking home!"

I have a meeting scheduled with the accountant but i was wondering is there a more tax efficient way of extracting the cash.

Thanks in advance.

Pension.

[northernladuk]

Sorry but being new is not a defense when admitting you didn't know dividends are taxed and at what rate. You run your business so up to you to do some research on how your remuneration model.

Have the meeting with your accountant, do some research and then come back with some more specific questions when you understand more IMO.

In the meantime maybe read all the newbie guides to the right hand side -->

[nc1]

I knew that was coming, my researched stopped at when it left the business...

Thanks all

Sorry but being new is not a defense when admitting you didn't know dividends are taxed and at what rate. You run your business so up to you to do some research on how your remuneration model.

Have the meeting with your accountant, do some research and then come back with some more specific questions when you understand more IMO.

In the meantime maybe read all the newbie guides to the right hand side -->

[eek]

Pension.

+1.... Your options are spend it now and be taxed on it or save it and spend it down the line.

The one IR35 conversation I had with HMRC where I stated no withdrawals followed by a very large pension contribution was a sight to behold....

[Fred Bloggs]

Hi all, very new to contracting however was not informed about the tax added to dividends once taken out of my Ltd. its seems a lot and will really cut in what i though was "taking home!"

I have a meeting scheduled with the accountant but i was wondering is there a more tax efficient way of extracting the cash.

Thanks in advance.

Yes it is very large. And so far it has been probably George Osborne's biggest revenue raising success to date. Introducing a tax rise on hundreds of thousands of people's income from 20 to 27.5% apparently without breaking his pledges on income taxation and without even a single murmur of dissent from anyone in the industry. Brilliant.

[TheCyclingProgrammer]

The dividend tax isn't too bad. For the average contractor who takes an efficient salary and dividends up to the higher rate tax threshold, the extra tax is a shade over £2k however you will see an overall increase in your take home as a result of no longer needing to gross up the dividends. Even after the dividend tax you should see roughly a £3k increase in your overall take home.

Of course that increase has to come from somewhere - the increase in dividends (including the tax) will reduce your company reserves by an extra £5k or so, so you'll want to aim to increase your annual taxable turnover by just over £6k or so to compensate.

So in perspective, depending on your day rate, that's anywhere from another 10-15 days of work a year or increase your average daily rate by £3 to £5.

Doesn't seem so bad now does it?

[Fred Bloggs]

The dividend tax isn't too bad. For the average contractor who takes an efficient salary and dividends up to the higher rate tax threshold, the extra tax is a shade over £2k however you will see an overall increase in your take home as a result of no longer needing to gross up the dividends. Even after the dividend tax you should see roughly a £3k increase in your overall take home.

Of course that increase has to come from somewhere - the increase in dividends (including the tax) will reduce your company reserves by an extra £5k or so, so you'll want to aim to increase your annual taxable turnover by just over £6k or so to compensate.

So in perspective, depending on your day rate, that's anywhere from another 10-15 days of work a year or increase your average daily rate by £3 to £5.

Doesn't seem so bad now does it?

Or if you look at it another way, the increase in tax on your dividend income (from 20 to 27.5%) is around 30%. Doesn't seem quite so good now does it?

(Naturally, that nice man the chancellor promised not increase taxation on income, but we'll not worry too much about that).

[TheCyclingProgrammer]

Or if you look at it another way, the increase in tax on your dividend income (from 20 to 27.5%) is around 30%. Doesn't seem quite so good now does it?

(Naturally, that nice man the chancellor promised not increase taxation on income, but we'll not worry too much about that).

It's not a 30% tax increase.

In 2015/16 I could have taken home a net income of £38921 without paying any higher rate tax or NIC (due to shareholding split I didn't take full personal allowance as salary), which grossed up for corporation tax gives me a turnover of £46,714, corporation tax of £7792 and no income tax for an overall take home rate of 83.3% (obviously I'm ignoring all other expenses here).

This year I will take home £40,753 from a total turnover of £51,740 having paid £8,740 in corporation tax and £2247 in dividend tax giving me a 78.7% take home rate.

Obviously there is a bigger impact of you go into the higher rate but otherwise that's only a 4.6 percentage point increase, so not as big as you suggested and is mitigated IMO by the overall increase in take home (so it won't have a direct impact on personal finances so long as you're turning over at least £52k plus enough to cover other expenses).

Nobody likes a tax increase by the sky isn't falling.

If you can't up your average rate by £20/day or find an extra 10-15 days of work then are you sure you are cut out to be a contractor?

[LondonManc]

The dividend tax isn't too bad. For the average contractor who takes an efficient salary and dividends up to the higher rate tax threshold, the extra tax is a shade over £2k however you will see an overall increase in your take home as a result of no longer needing to gross up the dividends. Even after the dividend tax you should see roughly a £3k increase in your overall take home.

Of course that increase has to come from somewhere - the increase in dividends (including the tax) will reduce your company reserves by an extra £5k or so, so you'll want to aim to increase your annual taxable turnover by just over £6k or so to compensate.

So in perspective, depending on your day rate, that's anywhere from another 10-15 days of work a year or increase your average daily rate by £3 to £5.

Doesn't seem so bad now does it?

Can't see suity getting a 150% pay increase.

On the whole though, that's a very useful summary. You have clearly never worked in the public sector