Tax on Dividends

[Bluebird]

I think I am right in saying that if you run your own Ltd Co and pay a salary [ small ] and Dividend [ bit bigger ], the Dividend is not subject to tax [ apart from an implied 10 % which you don't pay ] providing....

...Your PERSONAL income does not exceed £37k per annum.

When calculating this figure I need to take account of :

1] The dividends themselves
2] Salary [ net or gross ??? ]
3] Any interest - in this case during a month my bank gives me interst CR and DR ?

I think I'll be close to the 37k by end of March so need clarity on the salary figure

Cheers

[ratewhore]

fook me - how do you get by on that?

[Nixon Williams]

I think I am right in saying that if you run your own Ltd Co and pay a salary [ small ] and Dividend [ bit bigger ], the Dividend is not subject to tax [ apart from an implied 10 % which you don't pay ] providing....

...Your PERSONAL income does not exceed £37k per annum.

When calculating this figure I need to take account of :

1] The dividends themselves
2] Salary [ net or gross ??? ]
3] Any interest - in this case during a month my bank gives me interst CR and DR ?

I think I'll be close to the 37k by end of March so need clarity on the salary figure

Cheers

For 2006/07 you can have income of £38335 before higher rate tax kicks in.

You need to add all the GROSS income including salary, dividends, interest and any benefits in kind that you may have such as cars, private health etc.

Alan

[Tool]

I think I am right in saying that if you run your own Ltd Co and pay a salary [ small ] and Dividend [ bit bigger ], the Dividend is not subject to tax [ apart from an implied 10 % which you don't pay ] providing....

...Your PERSONAL income does not exceed £37k per annum.

Yes, AFAIK. You probably meant "provided that you are a basic rate taxpayer".

When calculating this figure I need to take account of :
1] The dividends themselves
2] Salary [ net or gross ??? ]
3] Any interest - in this case during a month my bank gives me interst CR and DR ?

I think I'll be close to the 37k by end of March so need clarity on the salary figure

Cheers

This figure (I guess you mean the 37k), is your total income for the tax year. So, yes, you have to add up all figures (and capital gains if more than 8k). The salary to take into account is your net salary (you and your ltd already paid taxes and NICs on it - don't you? )
If your total income makes you a BR taxpayer, there are no more taxes to pay on dividends.

Usual disclaimer: IANAA, so ask your accountant for professional advice.

[Tool]

The salary to take into account is your net salary

I was wrong! Thank you Alan for that reminder!
You have to add all the gross income. Taxes that you already paid will be deduced from the final bill.

[VectraMan]

Correct me if I'm wrong (quite possibly), but you have to take into account the 10% of the dividend.

So with £10K of salary and nothing else, the maximum dividend is not £28335, but £25759.

[Bluebird]

So it's my NET salary [ which is what I take home ]
PLUS the dividend I pay + the 'implied 10% tax

so if may take home is £800 per month [ = £9600 ]
and the divi I pay = £2,500 per month [ = 33000 ][ 2500+10%*12

Then the total = £41600

Do I therefore pay higher tax on all the £41,600 or just the amount in excess of the £38335 limit ?

Thanks

[Nixon Williams]

You have to take account of the GROSS salary and GROSS dividends (plus any other income you might have).

The gross dividend is the net + the 10% tax credit. (Divide the net dividend by 0.9 to get the gross amount).

Alan

[Bluebird]

ok so I'm going to be over the threshold - what do I pay higher rate tax on ?

[Nixon Williams]

ok so I'm going to be over the threshold - what do I pay higher rate tax on ?

The HR tax is due on any dividends that are in excess of the £38,335 limit (06/07), so if the total income is £39335, ie £1000 over the limit, the extra tax is 22.5% of £1000 ie £225

Note: The HR tax on dividends is 32.5% less the 10% tax credit so 22.5%

Alan