Going over personal allowance - divi's

[youngguy]

Coming to the 1st year's end so it is time to learn about divi's! Now I know I can take up to £38kish without attracting any more tax, and anything above that will mean I get taxed 25%.

I understand (by that I mean I am just trying to understand) that if I leave the money in the company then I will get taxed around 15% when the company is closed.

So I'm just trying to weigh up the options.

My simple mind tells me I either take it out now, and pay the extra tax, or leave it in and pay less tax in the future....although who knows what the future will look like.

As an example, I take out an extra £20k and lose around £5 to the taxman. However then the money can be invested and (possibly) recoup that? For example, I have a savings account which pays 3.92% PA and with other accounts and stocks and shares maybe I could get that back?

Alternatively I leave it in the company but who knows what the rules may be in 3,4 or 5 years. Plus if I am contracting in 20 years then there will be hundreds of thousands in there and the tax bill will be bigger! (I know it won't actually be bigger but it will feel bigger )

Just interested in an update on people's own views given the changes to taper relief and the possible uncertainty when the conservatives (probably) come in to power. Also are there other things I should take into consideration?

[max]

Coming to the 1st year's end so it is time to learn about divi's! Now I know I can take up to £38kish without attracting any more tax, and anything above that will mean I get taxed 25%.

Taxed another 25% on top of what you have previously paid, so a nasty 45% or so.

I understand (by that I mean I am just trying to understand) that if I leave the money in the company then I will get taxed around 15% when the company is closed.

It's possible. If you take as capital gain you're up for 10% minus any personal capital losses.

So I'm just trying to weigh up the options.

As an example, I take out an extra £20k and lose around £5 to the taxman. However then the money can be invested and (possibly) recoup that? For example, I have a savings account which pays 3.92% PA and with other accounts and stocks and shares maybe I could get that back?

You can get higher rates with your business funds, ie: abbey offer time deposit paying close to 6%.

Alternatively I leave it in the company but who knows what the rules may be in 3,4 or 5 years. Plus if I am contracting in 20 years then there will be hundreds of thousands in there and the tax bill will be bigger! (I know it won't actually be bigger but it will feel bigger )

Just interested in an update on people's own views given the changes to taper relief and the possible uncertainty when the conservatives (probably) come in to power. Also are there other things I should take into consideration?

When the conservatives come to power, it would be surprising if they increased tax on contractors.

My advice, I've been doing this stuff for many years, if I'd taken the cash out the company, I'd bought under priced tech stocks in 2001, houses in 2007, and it would be gone. Thanks to leaving in the company earning boring interest...things are pretty good.

[Olly]

don't take it out

Why pay extra tax unless you need the money? Use remaining company funds when you retire.
6% crikey I need to do some shifting of cash. My Euro account with Cater Allen earns a tiny amount of interest. Need to shift to GBP and find a better rate!

[BolshieBastard]

You only pay the higher tax on that portion which takes you over the threshold.

If you want the 'extra' money from your co, stop whinging and take it out and pay the bit extra tax.

If you dont need it, leave it in and potentially pay more tax in future if the regulations or tax rates change.

Is it so hard to figure out what do do over a couple of thousand quid!?

[Likely]

Another question: I was below the high-rate tax payer band last year ( under 38ish K , with 10 K in salary rest in dividends ) ... and apprently in this case I don't pay any tax on the dividends .... how come ?

[Gonzo]

Another question: I was below the high-rate tax payer band last year ( under 38ish K , with 10 K in salary rest in dividends ) ... and apprently in this case I don't pay any tax on the dividends .... how come ?

Because yourCo has already paid corporation tax on the money so the dividends are received by you with a 10% tax credit. This satisfies the tax due for a basic rate tax payer, but not a higher rate tax payer.

[VectraMan]

Another reason to leave it in the company is you may well find yourself out of work in the next financial year. You'd be stupid to pay a load of tax on dividends this year, then find next year you earn so little you don't even reach the threshold. That's tax you needn't have paid.

[youngguy]

You only pay the higher tax on that portion which takes you over the threshold.

I know, hence why I said "Now I know I can take up to £38kish without attracting any more tax, and anything above that will mean I get taxed 25%"

If you want the 'extra' money from your co, stop whinging and take it out and pay the bit extra tax.

I don't recall whinging, merely asking people's views!

Is it so hard to figure out what do do over a couple of thousand quid!?

Hard...no, but I like to be thorough and get views, is that not the purpose of this forum?!

You really live up to your name don't you!

[Jubber]

What happens if you get a PAYE review and you lose.? All that moolah will be deemed salary. Hector will claim his pound of flesh.

Spend it.

[Olly]

What happens if you get a PAYE review and you lose.? All that moolah will be deemed salary. Hector will claim his pound of flesh.

Spend it.

I never understood that (or rather I've not researched it) why wouldn't they retrospectively apply PAYE rules to what you've already taken from the company?

Anyway,if worried about IR35, put loads in pension then take 25% tax free at 50 and further tax free amounts each year? (don't know how much and if it is yearly actually)