Reducing Payment on account for large dividend

[heyya99]

I want to take a large dividend this tax year in advance of the tax changes. The result will set my gross income > 100k and I'll lose my tax free allowance.

Because this is a one off large payment, and next tax year I'll be revert to taking a salary and 7.5% taxable dividend, can I reduce my large payment on account? I won't be take a large dividend every year.

[jamesbrown]

I want to take a large dividend this tax year in advance of the tax changes. The result will set my gross income > 100k and I'll lose my tax free allowance.

Because this is a one off large payment, and next tax year I'll be revert to taking a salary and 7.5% taxable dividend, can I reduce my large payment on account? I won't be take a large dividend every year.

Yes, you can reduce it using your SA101 (SATR) or SA303. However, you should reduce it in line with the dividends that you do expect to take, given the upcoming dividend tax regime. BTW, if you're exceeding 100k, think about using a personal pension contribution to bring it back down (perhaps you've already done this).

[heyya99]

Yes, you can reduce it using your SA101 (SATR) or SA303. However, you should reduce it in line with the dividends that you do expect to take, given the upcoming dividend tax regime. BTW, if you're exceeding 100k, think about using a personal pension contribution to bring it back down (perhaps you've already done this).

Thanks. I had been told it was a possibility but didn't know if there were eligibility rules.

Re the pension contribution, can you elaborate on that? The only pension I have is a company pension.

[jamesbrown]

Thanks. I had been told it was a possibility but didn't know if there were eligibility rules.

Re the pension contribution, can you elaborate on that? The only pension I have is a company pension.

Speak to your accountant but, by way of example, you could make a personal contribution to a SIPP equal to (but not to exceed) your annual salary of, let's say, £10,600 (i.e. a net contribution of £8480, with the remainder added in basic rate tax relief), and then take dividends up to £110,600 and retain your full personal allowance, while also getting higher rate pension relief via your SATR of 0.225*£10,600=£2,385. Note that the gross personal contribution counts towards the overall annual limit of £40k. Anyway, you need to speak to your accountant about your personal circumstances.

[heyya99]

Speak to your accountant but, by way of example, you could make a personal contribution to a SIPP equal to (but not to exceed) your annual salary of, let's say, £10,600 (i.e. a net contribution of £8480, with the remainder added in basic rate tax relief), and then take dividends up to £110,600 and retain your full personal allowance, while also getting higher rate pension relief via your SATR of 0.225*£10,600=£2,385. Note that the gross personal contribution counts towards the overall annual limit of £40k. Anyway, you need to speak to your accountant about your personal circumstances.

I have spoke to my accountant and she never gave that as an option.

Semi-related question, do you know for dividends to be counted in the current tax year, is it sufficient for the money to have left my business account on April 5th, or must the funds have cleared on the 5th in my personal account? I don't want it to slip into the new tax year. I ask because I haven't figured out exactly the amount I need yet.

[jamesbrown]

I have spoke to my accountant and she never gave that as an option.

Semi-related question, do you know for dividends to be counted in the current tax year, is it sufficient for the money to have left my business account on April 5th, or must the funds have cleared on the 5th in my personal account? I don't want it to slip into the new tax year. I ask because I haven't figured out exactly the amount I need yet.

A dividend is effectively paid once the money is at your disposal, i.e. once it has been declared and credited to your director's loan account. There's no need for the payment to have left your company account, only for the paperwork to show the date it's due to be paid, at which point it is credited to your director's loan account. You'll then forward this paperwork to your accountant, so there will be no question about acting retrospectively (which, obviously, should not be done).

[SueEllen]

A dividend is effectively paid once the money is at your disposal, i.e. once it has been declared and credited to your director's loan account. There's no need for the payment to have left your company account, only for the paperwork to show the date it's due to be paid, at which point it is credited to your director's loan account. You'll then forward this paperwork to your accountant, so there will be no question about acting retrospectively (which, obviously, should not be done).

I did that last year by accident.

I declared a dividend at the end of March and did all the paperwork, then forgot to distribute it. Doh

[northernladuk]

I have spoke to my accountant and she never gave that as an option.

Semi-related question, do you know for dividends to be counted in the current tax year, is it sufficient for the money to have left my business account on April 5th, or must the funds have cleared on the 5th in my personal account? I don't want it to slip into the new tax year. I ask because I haven't figured out exactly the amount I need yet.

You are planning on taking dividends from profit and not every penny in the bank including the money that is there for tax liabilities etc?

[heyya99]

You are planning on taking dividends from profit and not every penny in the bank including the money that is there for tax liabilities etc?

Yes, of course. But this is what I'm trying to figure out in advance of Tuesday. If I take out my dividend + extra to cover the tax liability, I'll have 40k left. But if I am unable to reduce the payment on account, I'll have to take even more out and that will use up the spare 40k. I want to do the transaction today but I won't be able to until I get clarification from my accountant on Monday, and that's cutting it fine.

[northernladuk]

I wouldnt be looking at tax liability money as 'spare' money IMO.

This is for the house again is it?