Accountant help please

[Eveadel]

My husband has his own business and every month he has been drawing a wage and a dividend. He is paying tax & ni on the wage but not paying tax on the dividend is this correct?? Is there a limit to how much dividend you have?

 

[Emmylou]

I think he'll need to declare the dividend payments when he does his self-assessment for tax, as he will need to pay some sort of tax on that eventually.

 

[Emmylou]

Here's some info taken from Here

Paying tax on dividend income
If you pay tax at or below the basic rate
You have no tax to pay on your dividend income because the tax liability is 10 per cent - the same amount as the tax credit - as shown in the tables.
If you pay tax at the higher rate
You pay a total of 32.5% tax on dividend income that falls above the basic rate Income Tax limit (£34,600 for the 2007-2008 tax year). But because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit, in practice you owe only 22.5 per cent.

Note that dividend income, like savings income, is taxed after your non-savings income (for example, wages and self-employment profit) at your highest tax rate. If it falls both sides of the £34,600 higher rate tax bracket, it will be taxed partly at 10 per cent (and covered by the tax credit) and partly at 32.5 per cent (less the 10 per cent tax credit).

So I think what thats saying is that if the overall income is below £34,600 then there should be no tax to pay, because the way the dividend is paid includes a 10% tax credit which covers the 10% tax deduction that would be due.
If the overall income is over £34,600 then there will be some tax to pay, as the tax on the higher income is 32.5% not the standard 10%.

Does that make sense?

 

[Eveadel]

Hi thanks for your reply.

Im abit thick so it doesnt make sense to me

Just for example he is paying himself £1000 a month wage and then a £2000 dividend a month. He is paying tax & ni on the £1000 wage of approx £350 a month. So should we be putting some money away for tax for the dividend?????????

Thanks

 

[Eveadel]

Hiya just wondered if anyone could advise please. Thanks in advance

 

[Emmylou]

Hi hun

Not been on since last post, sorry......do you have an accountant that processes the wages and dividend payment? If so they should be sortng the whole 10% credit/ tax issue on the dividend....if he takes out the full £2000 and doesn't have a dividend certifiate to produce with his self assessment then you may have to pay some tax.

A brief calculation shows that your husband takes £36,000 a year in salary & dividends (before tax & NI), therefore he must pay 32.5% tax overall (he'd probably be better off financially to take that little bit less out of the business to bring his salary to less than the £34,600 - so take £34,500 to be within the limit - as he would pay a lower tax rate, and prob end up with more than if he takes what he currently takes and pays the higher tax?!)

If he takes the £36,000 out then yes, you'll need to put some money aside for a tax payment once the self assessment has been completed.

Definitely chat with your accountant about the benefit of taking less money to below the £34,600 and therefore pay less tax.

 

[Eveadel]

Ah thanks so much for the advice, I will speak to our accountant