Salary/Dividends Tax threshold

[aj1977]

I operate through my LTD company with my annual salary as £10500.
My accounting firm says that the government allows £5225 to earn without paying tax.

They say £39825 is the higher rate tax threshold(34600+5225) and hence I can pay myself a maximum
dividends of £29325(39825-10500) without crossing over to the higher tax bracket.

Is this correct?

[malvolio]

Yes.

[MrRobin]

I operate through my LTD company with my annual salary as £10500.
My accounting firm says that the government allows £5225 to earn without paying tax.

They say £39825 is the higher rate tax threshold(34600+5225) and hence I can pay myself a maximum
dividends of £29325(39825-10500) without crossing over to the higher tax bracket.

Is this correct?

Almost. The maximum GROSS dividend you can pay before you hit the extra tax is £29325, as you have above, which includes the 10% tax credit.

I.e. you can collect 90% of that in dividends. ~£26k.

[MrRobin]

The threshold of £34,600 includes £5,225 zero tax band.

No it doesn't.

[Chugnut]

I operate through my LTD company with my annual salary as £10500.
My accounting firm says that the government allows £5225 to earn without paying tax.

They say £39825 is the higher rate tax threshold(34600+5225) and hence I can pay myself a maximum
dividends of £29325(39825-10500) without crossing over to the higher tax bracket.

Is this correct?

Why not ask the accountant who told you about the £5225 personal allowance? You're already paying for their advice, ours is worth feck all.

Remember that dividend calculations must be grossed up to include the 10% tax credit, you may find yourself going into the 40% bracket before you thought.

[Lewis]

No it doesn't.

Yeah, sorry realised my mistake and deleted reply. Appologies.

[aj1977]

Almost. The maximum GROSS dividend you can pay before you hit the extra tax is £29325, as you have above, which includes the 10% tax credit.

I.e. you can collect 90% of that in dividends. ~£26k.

Sorry for being Naive..Could you explain it more....I have already declared dividends so far to the tune of £X.

Now I want to declare more without hitting the upper tax threshold and hence i enquired with my accountant.I have the 10% tax credits from the accoutant for all the dividends declared so far.

So am I correct in believing that my dividend amount left before crossing the upper tax threshold is (29325 -X)??

Please guys go easy on me. I already have approached my accountant with these questions, however they have already cocked up on my previous VAT and expense calculations and hence want double confirmation(and hence this post)

Cheers

[Ruprect]

Note if you are director of you ltd company then there is no legal requirement for you to pay yourself NMW, so you are already paying tax on (10500 - 5225) that you don't need to. If you pay yourself 5225 p.a. then you can drop the extra in a dividend and you don't have to pay employers or employee's NI on that extra 5K.

[VectraMan]

So am I correct in believing that my dividend amount left before crossing the upper tax threshold is (29325 -X)??

As Mr Robin said, you need to take into account the 10% credit. The amount you can pay is 29325 / 1.1 = 26659.

[MrRobin]

Its easier to explain if I plug in some example numbers...

Say you have withdrawn £10k in dividends this tax year. That means there has also been £1,111.11 tax credit applied.

So out of the £39,825 before the higher rate tax threshold, you have £10500 in salary, £11,111 so far in dividends+tax credit so there is £18214 left for dividends+tax credit. I.e. you can withdraw £18214 x 90% = £16,393

<Neil Buchanan Mode>

Try it yourself

</Neil Buchanan Mode>