View Full Version : Dividends for 2016-17

smileyface

13th December 2016, 15:09

According to this article:

Dividend tax (rules 2016/17 on) (http://www.rossmartin.co.uk/directors/tax-efficient-remuneration/1591-summer-budget-2015-dividend-tax)

it states the following:

"2016/17 example: the dividend allowance is within your basic rate tax band

If you are a basic rate taxpayer, and you receive all your taxable income in dividends you will be up to £2,025 worse off.

The basic rate tax threshold for 2016/17 is £43,000 (personal allowance of £11,000, plus basic rate tax band of £32,000)

If a dividend of £32,000 is received it is taxable as follows, breaking it down into the different "slices":

The first £5,000 - covered by your dividend allowance

The next £27,000 (the remainder of your basic rate band) - taxed at the new 7.5% = £2,025 tax due."

Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

Thanks

chopper

13th December 2016, 15:37

Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

You would have £8060 of Salary at 0% tax

Then £2940 of Dividends at 0% tax

Then another £5000 of Dividends at 0% tax

Then the remaining £27,000 at 7.5% dividend tax.

The difference, therefore, in paying £8060 salary + £34940 dividends compared to £11000 salary + £32000 are a) the Employer and Employee NICs on the £2940 extra salary or b) Corporation Tax at 20% on an extra £2940 (given you get CT relief on salary, but not dividends).

What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.

TheCyclingProgrammer

13th December 2016, 16:50

Yes.

northernladuk

13th December 2016, 17:13

Woo-hoo.. A numbers thread we haven't ballsed up multiple times!!!

smileyface

13th December 2016, 17:38

You would have £8060 of Salary at 0% tax

Then £2940 of Dividends at 0% tax

Then another £5000 of Dividends at 0% tax

Then the remaining £27,000 at 7.5% dividend tax.

The difference, therefore, in paying £8060 salary + £34940 dividends compared to £11000 salary + £32000 are a) the Employer and Employee NICs on the £2940 extra salary or b) Corporation Tax at 20% on an extra £2940 (given you get CT relief on salary, but not dividends).

What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.

Thanks for your detailed explanation.

malvolio

13th December 2016, 18:50

What I can't be bothered working out is what the NICs are on that £2940 compared to the corporation tax.

Well CT is 20% and NICs are (13.8 + 2)% (I think, without looking it all up) so it look like salary is more efficient. But ICBW...

kaiser78

13th December 2016, 20:42

Woo-hoo.. A numbers thread we haven't ballsed up multiple times!!!

92nd time, sorry 94th time lucky (ballsed up there)...

kaiser78

13th December 2016, 20:44

According to this article:

Dividend tax (rules 2016/17 on) (http://www.rossmartin.co.uk/directors/tax-efficient-remuneration/1591-summer-budget-2015-dividend-tax)

it states the following:

"2016/17 example: the dividend allowance is within your basic rate tax band

If you are a basic rate taxpayer, and you receive all your taxable income in dividends you will be up to £2,025 worse off.

The basic rate tax threshold for 2016/17 is £43,000 (personal allowance of £11,000, plus basic rate tax band of £32,000)

If a dividend of £32,000 is received it is taxable as follows, breaking it down into the different "slices":

The first £5,000 - covered by your dividend allowance

The next £27,000 (the remainder of your basic rate band) - taxed at the new 7.5% = £2,025 tax due."

Suppose my salary is only £8,060. I take £5,000 as dividends. Does that mean I can take a further £29,940 (as opposed to only £27,000) and have that taxed at 7.5%?

Thanks

The steer I was given was to draw a much larger dividend in fy 2015/16 and pay the additional income tax on that, rather than leave in the company and draw out as dividends on fy 2016/17 when I would then have to pay the dividend tax. This way overall I would be paying less tax.

chopper

13th December 2016, 23:06

Well CT is 20% and NICs are (13.8 + 2)% (I think, without looking it all up) so it look like salary is more efficient. But ICBW...

So I bothered to look it up now.

NICs on £11k Salary would be £353 for employee NICs, plus £399 employer NICs. (unless you get employment allowance).

Corp Tax on that £2940 would be £588.

So I guess the answer is if you qualify for Employment Allowance, then take £11k salary. If not, then take £8060 salary.

northernladuk

13th December 2016, 23:20

So I bothered to look it up now.

NICs on £11k Salary would be £353 for employee NICs, plus £399 employer NICs. (unless you get employment allowance).

Corp Tax on that £2940 would be £588.

So I guess the answer is if you qualify for Employment Allowance, then take £11k salary. If not, then take £8060 salary.

I thought all the basic guides out there said that when advising options for 2016?