How much of your dividends do you withdraw?

[monkeygeorge]

I've heard mixed views on the best approach, however I see little benefit in keeping funds in your company, either you take the dividends and get taxed on a regular basis, or you take it some point in the future and get taxed heavily then?

I understand it's no longer possible to close your company after two years to withdraw the funds without incurring the tax.

Am I missing something, other then making yourself a target for a contractor working as a permie?

[Lewis]

You want to draw enough to not make you (and the wife if an income shifter) a higher rate tax payer. You then want to consider what to do with the rest based on personal circumstances, e.g. if you are taking 6 months off next year that would be a good time to take some cash out of the company.

[DaveB]

I leave around 10% in the company each month to count towards the slush fund so I can keep paying salary each month and occasional divi's if I'm on the bench.

[ASB]

I think there are two elements to this.

One being the dividends declared. Assuming that the profit is there the declaring dividends to use up the shareholders basic rate bands is probably sensible - if you don't use it then it's lost forever. Obviously some will have to ensure they declare more than this because they need to live on.

The second is of those dividends how much is actually paid to the shareholders. It doesn't all have to be paid, though it does need to be documented if not. In this case it is simply a long term liability on the balance sheet.

Even if you only happen to need 10k, it is probably wise for most to declare 40k (or whatever will use the standard rate band) and leave the other 30k in the company for a rainy day which can be drawn with no further taxation consequences.

[lambrini_socialist]

i've only been Ltd a few months, and i'm declaring (i.e. minuting) dividends two or three times a month at the moment, along with a monthly salary and expenses claim. i'm guaranteed to go into the higher band anyway just by taking enough money to pay the rent and council tax. are you guys saying it's a better approach to declare one large dividend and pay it out gradually? if so, why?

[Lewis]

i'm declaring (i.e. minuting) dividends two or three times a month at the moment

Wow! I've always been advised by my accountants to declare dividends at most quarterly to avoid them being classified as income. It's been debated here a few times as to whether monthly dividends are ok or not. But jeez, can you not plan ahead a week!

[monkeygeorge]

You want to draw enough to not make you (and the wife if an income shifter) a higher rate tax payer. You then want to consider what to do with the rest based on personal circumstances, e.g. if you are taking 6 months off next year that would be a good time to take some cash out of the company.

But why not take it now and invest in a high interest account, rather than leave it in your company account. What good is it doing there?

...leave the other 30k in the company for a rainy day which can be drawn with no further taxation consequences.

What do you mean no further taxation consequences if you draw it at a later date?

[lambrini_socialist]

Wow! I've always been advised by my accountants to declare dividends at most quarterly to avoid them being classified as income. It's been debated here a few times as to whether monthly dividends are ok or not.

i've had no advice on that from my accountant (i haven't asked, to be fair).

perhaps i'll, um, "amend" my minutes (with the aid of a box of matches)

But jeez, can you not plan ahead a week!

i totally hear you, but going Ltd takes some getting used to and TBH i feel i'm doing a pretty good job so far! these frequent, small dividends i'm declaring are more down to a general sense of financial cautiousness than a lack of planning. some readjustment in my thinking probably required though.

[Lewis]

But why not take it now and invest in a high interest account, rather than leave it in your company account. What good is it doing there?

What do you mean no further taxation consequences if you draw it at a later date?

In answer to both these questions. For dividends that do not put you into the higher rate bracket you have no additional tax to pay on self assessment. For the rest you need to pay additional tax at self assessment. So (a) is to avoid extra tax and (b) the consequences are you will pay extra tax.

[Lewis]

i've had no advice on that from my accountant (i haven't asked, to be fair).

perhaps i'll, um, "amend" my minutes (with the aid of a box of matches)



i totally hear you, but going Ltd takes some getting used to and TBH i feel i'm doing a pretty good job so far! these frequent, small dividends i'm declaring are more down to a general sense of financial cautiousness than a lack of planning. some readjustment in my thinking probably required though.

You can take a tax free director's loan of up to £5K. Maybe bin the dividend minutes and instead put it in your accounts as a director's loan. Later declare a £5K dividend that clears the loan. But get advice from your accountant.