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Salary and dividend structures?

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pyke
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Salary and dividend structures?

Post by pyke » Fri Aug 10, 2012 8:33 pm

Hi,

For someone with a new limited company, director and sole shareholder, what dividend and salary structure would you recommend, taking into account extension requirements and tax efficiency? I'm wondering how others have structured their payments, particularly for the extension.

My accountant has recommended - low salary below the personal tax threshold with high dividends, which I won't be doing or NMW with moderate dividends, which I'm thinking of. However, I don't think he really knows the extension requirements though I've informed him and thus, would like your opinions too.

I checked and couldn't really find other posts on it.

Thank you.

alimohmand
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Post by alimohmand » Fri Aug 10, 2012 9:27 pm

He is right :)

Salary below the threshold and High dividend which is more tax efficient way.

All the best

pyke
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Post by pyke » Tue Aug 14, 2012 4:49 pm

Hi alimohmand,

Thanks! I suppose there aren't significant implications for extensions then?

scorpio_besal
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Post by scorpio_besal » Tue Aug 14, 2012 7:52 pm

Please excuse my ignorance, how does anyone get benefited with High dividend in terms of saving money from tax in contrast to some one who is working as sole trader.
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scorpio_besal
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Post by scorpio_besal » Tue Aug 14, 2012 8:24 pm

seems like, I have got my answer, but thought of sharing it with everyone.

http://www.whitingandpartners.co.uk/con ... arison.htm
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 9:12 am

I would recommend to get some basic salary (say about 9k) and then rest as dividend...

This way UKBA will be satisfied that atleast your are paying some tax...and good nes is if you dont work for the whole year you can claim back the tax paid from HMRC

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 9:29 am

claiming the tax back, would it not be considered as claiming public funds.??
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 9:44 am

no...who said that..its your money which you have overpaid to HMRC...

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 9:53 am

I have couple of questions, hope you would be able to help.

I am employed and recently in March 2012 I have registered as sole trader with HMRC and received my UTR.

Now my question is , my expected net profit as sole trader for an year is about 15000gbp before tax and NI 2& 4.

If I want to , can I change my status from sole trader to LTD company this month, and the income which I have earned as sole trader from April 06 2012 until now can I change that to dividend and draw some money as salary.

Thank you in advance for you help. :)
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 10:00 am

I dont think so ..you can do that because the limited compnay incorporation date is not April it will be August and then only you can trade through that company...

So you wont be able to do that...

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 10:05 am

So do you think that I can register as LTD company now in September and then the transaction from here on I can use it to claim points for my earning as self employed (LTD).

If yes, do you think I would need to apply for a new business account, as my existing business account, I am using for sole trading purpose.
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 10:25 am

yes...you would be able to do it also when you start operating through limited company tell HMRC that you have now become the director of the company and they need to update their record otherwise its going to cause problem afterwards especially with the IDIOTS sitting in UKBA...

Also you would need to open a business bank account in the company name..

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 10:34 am

Thank you Gaurav for answering my queries, much appreciated. I wish I knew about this before that LTD company is such a good option from a tax saving point.

If I update HMRC that I am now a director of LTD company and I am no longer wish to continue as sole trader. Do they register me as LTD company over the phone. Do I get any thing in the post which I need to keep ;example like when I registered as sole trader , I got UTR.


Do I need to register for VAT, employer to pay TAX and NI. When would I pay coperation tax,is it paid at the end of the financial year.


Now would you know, what would happen to the income which I have earned from April 06 until now as sole trader.
Last edited by scorpio_besal on Wed Aug 15, 2012 11:03 am, edited 1 time in total.
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 10:47 am

You would need to tell HMRC and they would update their record or they might ask y to send Self Assessment form (you need to fill and send it to them if you have become company director)..

If you want you can register for VAT and yes you would need to submit form for being registred as employee for NI...your accountant should be able to do all this for you...Make sure you appoint the accountant which is according to UKBA norms..I believe you pay the corporation tax after 22 months of date of incorporation(not absolutely sure again ask your accountant)..

Unfortunately you would need to pay tax and NI contribution on that (try to minimise it by adding expenses to it)....

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 10:55 am

Gaurav...Thank you once again..!!
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scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 6:41 pm

Gaurav, I just have one doubt, hope you would be able to help me with this.

Presently I am working , and from my employment I am receiving 21K yearly and I would be continuing with it.

If I start a LTD company with an estimated earning of about 16K, and if I draw salary of about 6K from my business,would it be subject to tax as through my employment I am earning more than the personal allowance for tax purpose.

And I have to pay 20% cooperation. tax on my net profit and 10% on dividends for income received below the higher rate income tax threshold (£35,000). Which means the total deduction of 30% on the total net earning. Is that correct.
Last edited by scorpio_besal on Wed Aug 15, 2012 7:36 pm, edited 2 times in total.
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pyke
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Post by pyke » Wed Aug 15, 2012 7:22 pm

I would recommend to get some basic salary (say about 9k) and then rest as dividend...

This way UKBA will be satisfied that atleast your are paying some tax...and good nes is if you dont work for the whole year you can claim back the tax paid from HMRC
Thanks gaurav! It is difficult - with all the flexibility, I think the reason I'm concerned is that I might make a calculation error and fall short of the required points.
would I have to pay tax on dividend
Tax yes, if it's above the treshold, but NI no.

scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 7:42 pm

But I read some where that the actual rate of tax you pay in dividends will be lower than these headline rates, as dividends automatically receive a 10% tax credit. This takes into account the fact that you will already have paid corporation tax on your company profits.

So, for lower rate taxpayers, you will have no further tax to pay on dividends, as the 10% tax credit cancels out the 10% 'dividend ordinary rate'.


is that not correct.??
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scorpio_besal
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Post by scorpio_besal » Wed Aug 15, 2012 7:44 pm

Presently I am EMPLOYED and from my employment I am receiving 21K yearly and I would be continuing with it.

Along with my EMPLOYMENT, If I start a LTD company with an estimated earning of about 16K yearly, and if I draw salary of about 6K from my business,would it be subject to tax as through my employment I am earning more than the personal allowance for tax purpose.
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gaurav76.5
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Post by gaurav76.5 » Wed Aug 15, 2012 7:58 pm

yes it will be....

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