I Am The One In 20...

[Bloo Loo]

If your PAYE and dividend take exceeds the 40% threshold you have to pay the difference between the corporation tax rate and the personal one don't you?

dunno....

[Bloo Loo]

Maybe

********

What about the self-employed and contractors, as mentioned before?

what about them...they still have the personal tax barriers

[MinceBalls]

Speaking to someone in work today about this.

He earns more than me but he pays himself only about £200 pw through his company (the rest is divis subjest to corp tax) and the amount he says he is entitled to via Child tax credit etc, well, you wouldn't want to know.

Sounds like B0llox i'm afraid; I am in the same situation - most of my income is company dividends... thing is, these are STILL included as personal income for the tax year. You cannot claim UK company dividends on a ltd company and them not appear as personal income. Unless he has some dodgy offshore arrangement with some other company.

I know of another dozen or more IT contractors in London all earning 500 per day + and this is the same: you claim it in dividends it ends up as personal income and as such is declaired when filling out the CTC / WTC form.

People like to talk the talk but it doesn't mean they are not talking sh1t.. I suggest that if he is getting a lot of CTC he is LYING on the form - not putting down his actual income. Which is fraud and a completely different argument altogether.

[homeowner595]

dunno....

Yes, you basically pay the difference between the tax already deducted with the dividend and your top rate of income tax. The reason to do it is that dividends don't incur national insurance, which if you're self-employed via your own limited company, your limited company would have to pay, which saves paying an additional 11%. This is the arrangement that IR35 was meant to attack.

[Bloo Loo]

Yes, you basically pay the difference between the tax already deducted with the dividend and your top rate of income tax. The reason to do it is that dividends don't incur national insurance, which if you're self-employed via your own limited company, your limited company would have to pay, which saves paying an additional 11%. This is the arrangement that IR35 was meant to attack.

there you go, HPC always has the answers....Ive read the notes from my accountant and its the NI you save on mostly, but I gather the Dividend/salary idea loses value as you approach and exceed 50K....or is it it gets better?....not likely to earn at that rate for more than a couple of months so I wont be finding out anytime soon.

[Bloo Loo]

Sounds like B0llox i'm afraid; I am in the same situation - most of my income is company dividends... thing is, these are STILL included as personal income for the tax year. You cannot claim UK company dividends on a ltd company and them not appear as personal income. Unless he has some dodgy offshore arrangement with some other company.

I know of another dozen or more IT contractors in London all earning 500 per day + and this is the same: you claim it in dividends it ends up as personal income and as such is declaired when filling out the CTC / WTC form.

People like to talk the talk but it doesn't mean they are not talking sh1t.. I suggest that if he is getting a lot of CTC he is LYING on the form - not putting down his actual income. Which is fraud and a completely different argument altogether.

the phrase the BS's used to use was..."ive got a tax problem"...I never knew what they meant...except I suspect the reality was theyd spent it all and had the tax bill they couldnt pay.

[19 year mortgage 8itch]

Sounds like B0llox i'm afraid; I am in the same situation - most of my income is company dividends... thing is, these are STILL included as personal income for the tax year. You cannot claim UK company dividends on a ltd company and them not appear as personal income. Unless he has some dodgy offshore arrangement with some other company.

I know of another dozen or more IT contractors in London all earning 500 per day + and this is the same: you claim it in dividends it ends up as personal income and as such is declaired when filling out the CTC / WTC form.

People like to talk the talk but it doesn't mean they are not talking sh1t.. I suggest that if he is getting a lot of CTC he is LYING on the form - not putting down his actual income. Which is fraud and a completely different argument altogether.

I dunno the ins and outs of his financial arrangments so I'll have to plead ignorance. If I'd been speaking to a Billy Bullshitter I wouldn't have reported the anecdote but the story went that when the CTC system, as is, came in. He was only claiming a low wage from his company (this is engineering, tryig to avoid IR35) and ended up with a large TC claim which he didn't think was right given his "real" income. I'm staff so I genuinely have no idea how accountancy and tax works from the other side of the fence.

[19 year mortgage 8itch]

what about them...they still have the personal tax barriers

I've ask a few people I trust regarding their tax position and although they earn a fair bit above the 40% level, they don't pay higher rate income tax and the overall percentage of tax paid on their income is significantly less than I would pay under PAYE.

[LJAR]

http://news.bbc.co.uk/1/hi/magazine/7581120.stm

income distribution for the UK

[Bloo Loo]

I've ask a few people I trust regarding their tax position and although they earn a fair bit above the 40% level, they don't pay higher rate income tax and the overall percentage of tax paid on their income is significantly less than I would pay under PAYE.

well, yeah, thats the idea.

[jaynewcastle]

People liable at 40% on their PAYE/self-emp income, have their dividend income taxed at just 32.5%. Below that, dividends are taxed at 10%, compared to 20% for everything else

A legal loophole that should have been closed years ago.

Unfortunately the MP's who decide the tax bands/ rates etc, don't have much of a clue about tax. ie Just look at the Labour withdrawal of the 10% tax band & its unwanted effects

[miko]

You own a house outright worth around £800,000 don't you miko? How much of that property wealth came from the easy ride of house price inflation?

One minute you're playing for sympathy for your sister because of her big mortgage that she took on, because like hundreds of thousands of other people she innocently only wanted a home. Even if it meant taking on a lot of mortgage. Then encouraging Kyoto to buy some overpriced property because he could just about afford to now with a big mortgage.

It's not enough being able to afford to buy now even if you're earning £100,000+. I want proper property value for the savings I've built up and less mortgage debt to service. I'm with you Kyoto for not wanting be a slave to a mortgage but would wait for lower house prices wherever you decide to buy.

No read correctly

I said he could afford a house in London earning £100+ . With his savings he could buy one without having to borrow over £250k.

My sister never took on a big mortgage just a normal mortgage. If her old man earn't £100+ she would not need to work. She is a long way down the pecking order to those on £100+.

I do own a place outright but it is not worth 800+ , hope that part of your post was a joke.

[miko]

Wow, you really have a chip on your shoulder. Get rid of the green goggles for a minute.

The simple fact is that in London that buying a house, even on a 100k salary is a risky business. Jobs where you are paid 100k are generally not the sorts of jobs you can count on for 20 years (with the exception of being a GP, apparently). The poster has been on this sort of salary for 3 years, which, living fairly frugally and sharing costs with another, might mean he has saved £150k. This, in anybody's book is an obscene amount of money saved from 3 years work, BUT a decent house in a reasonable suburb of London is probably at least £450,000+ so he would need a £300k mortgage - insane and very risky as that 100k may very likely stop coming in one day.

Which is precisely his point. If someone on his huge salary does not feel comfortable jumping into the present housing market, then how can a household on average income of £37k do so without wilfully ignoring the serious risks involved? His whole point is that the market is insane.

I worked very hard during my 20s and early 30s - unfortunately for me I expended that energy in academia. By the time I left I was earning a good salary, but it was a financial disaster as for a lot of the time I was on short term contracts; never felt in a position to buy a house as I never knew if I would be in the same city in 3 years time (as it was I spent 17 years in the same place!), and before the liar loan phenomenom, banks wouldn't give me a mortgage in any case. Missing the boat for whatever reason in the mid to late 90s has been a defining moment for many gen Xers and most of gen Y. Those who got on are wealthy, those who did not are currently fecked, almost regardless of how much they earn. I left a well paying career to start working in an obscenely paying career just so I could afford to buy a place to live. The whole thing is completely mad.

Edited to add - ah, Kyoto has stated he has 110k saved still which means he is spending about 25k a year to live in London - which sounds about right if one includes travel and other work costs.

That was long winded ,

No green goggles from me , I said he could afford a house in London without having to go in hock to the bank for over £250k.

Buying a house has always been risky as jobs have always changed and dissapeared. My first place I was earning 13k a good wage back then and had to work nights to get it . Just before I exchanged i was told my job was at risk but I still bought the place . The job lasted another 2 years and I managed to keep the place and find another job. Glad i never stood back and went along with the doom mongers who said don't buy as prices went up and up after I bought.

I understand like everyone else on this site that prices are astronomical and people are struggling but crash or not buying houses is never going to be a case of it being given to people on gold plates , sometimes people have to take the plunge . On £100+ he could.

[miko]

Miko, the EA, said there was a property shortage in E14...He lied about that.

Don't call me a liar . Back yourself up with fact.

I never said there was a property shortage in E14 to buy . I said there was a shortage of property to rent in E14 and E16.

Try this simple exercise phone six agents in those areas and ask to rent a one bed room flat . Come back on here and tell us how you got on.

If you DONT tell me there was none or very few avaliable I will know that you are the liar .

[19 year mortgage 8itch]

well, yeah, thats the idea.

I can't really complain about tax evading contractors or the fact they get paid more as I could do the same tomorrow. The fact I don't means I should STFU.

I didn't expect to be a higher rate tax payer, I thought I was a long way off but the combination of a decent annual pay rise, a decent company bonus and the freezing of the tax allowance (by Labour in March) in the space of a couple of months meant I suddenly ended up in this tax band. I've no fancy fancy pension arrangements, just a standard 5% contribution. So I know how much you get to take home on this level of pay, how much tax you pay and yes, it should leave small families comfortable with no need for Child Benefit but really, the levels of consmption I witness do not in any way support the ONS statisitcs.

[ccc]

People liable at 40% on their PAYE/self-emp income, have their dividend income taxed at just 32.5%. Below that, dividends are taxed at 10%, compared to 20% for everything else

A legal loophole that should have been closed years ago.

Unfortunately the MP's who decide the tax bands/ rates etc, don't have much of a clue about tax. ie Just look at the Labour withdrawal of the 10% tax band & its unwanted effects

My word do people not know how to use google !!

And it seems there are also a fair few IT contractors on this thread too that havent bothered to look up the facts. Get with it people. You lot are on big bucks to look after the IT of this country. You whinge about useless Indians. Yet you can't even use google and spare 4.6 seconds to read exactly how much tax you have to pay on your divdends. It is not rocket science. I did answer this earlier today off the top of my head - and I am not exactly a practicing accountant.

Direct Gov Tax on dividends

You pay a total of 32.5 per cent tax on dividend income that falls above the basic rate Income Tax limit (£37,400 for the tax year 2010-11). In practice, however, you only owe 25 per cent of the dividend paid to you. This is because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit.

[Kyoto]

You pay a total of 32.5 per cent tax on dividend income that falls above the basic rate Income Tax limit (£37,400 for the tax year 2010-11). In practice, however, you only owe 25 per cent of the dividend paid to you. This is because the first 10 per cent of the tax due on your dividend income is already covered by the tax credit.

Yes, that is my situation. IT contractor, paid 25% to the penny in my first year of trading.

[ccc]

Yes, that is my situation. IT contractor, paid 25% to the penny in my first year of trading.

Ah - so you are like me and bothered to find out what that number would be when you finally filled in the annual return.

I don't think many others do !!

Quite important stuff to work out IMO. Although maybe others earn so much they don't give a ******.

[MinceBalls]

Ah - so you are like me and bothered to find out what that number would be when you finally filled in the annual return.

I don't think many others do !!

Quite important stuff to work out IMO. Although maybe others earn so much they don't give a ******.

The amount you pay depends on the combination of how much PAYE you draw and how much dividend you take so it isn't quite as simple as Google... people may well draw different amounts as PAYE for different reasons and you pay employers contribution on this @ 11%. You have figured out exactly how much tax YOU pay in one given moment ON YOUR DIVIDENDS... well done Smartypants; but like you say Google will find that for you in 30 seconds. But an overall contribution isn't the same in ALL situations as it depends on the circumstances. When we started discussing this the OP didn't specify (and doesn't know) the exact circumstances of the person he was discussing....

There is also corporation tax to pay and you've not even mentioned that... so dividend tax is not your entire tax liability if you run a limited company

Then you'll likely pay an accountant to run your books and do your VAT so that's an additional cost - granted it isn't a tax but it will hit your take home so simply saying 25% tax as if it is a no brainer - being less than 40% if you were on PAYE at the higher rate - is not accurate - in fact it shows that you haven't taken all your liabilities into account.

Edited October 5, 2010 by MinceBalls

[ccc]

The amount you pay depends on the combination of how much PAYE you draw and how much dividend you take so it isn't quite as simple as Google... people may well draw different amounts as PAYE for different reasons and you pay employers contribution on this @ 11%. You have figured out exactly how much tax YOU pay in one given moment ON YOUR DIVIDENDS... well done Smartypants; but like you say Google will find that for you in 30 seconds. But an overall contribution isn't the same in ALL situations as it depends on the circumstances. When we started discussing this the OP didn't specify (and doesn't know) the exact circumstances of the person he was discussing....

There is also corporation tax to pay and you've not even mentioned that... so dividend tax is not your entire tax liability if you run a limited company

Then you'll likely pay an accountant to run your books and do your VAT so that's an additional cost - granted it isn't a tax but it will hit your take home so simply saying 25% tax as if it is a no brainer - being less than 40% if you were on PAYE at the higher rate - is not accurate - in fact it shows that you haven't taken all your liabilities into account.

Yes I pay an accountant to run my books. But I also look into it myself so I have a rough idea of how it all works. So yes I am, by all accounts, a smartypants.

I have not mentioned corporation tax as that is for the Ltd Company to pay and not the individual. I was replying to the posts below that were specifically related to dividend payments, income tax and PAYE.

Dividend payments are subject to the same income tax as PAYE.

I thought they were 32%, whereas income tax obviously varies from 20% to 50%?

If your income goes above the lower tax limit ~ 42k or whatever (Excluding your allowance of course) then you should put aside about 25% for additional tax on any dividends taken. The actual amount is 30% ish but there is some tax rebate thing (IIRC) which you can take off. Basically it is 25% until you are reaching the higher new limit, over 150k IIRC.

Better than 40% + NIC's anyway.

And my response to the query above was pretty good considering it was off the to off my head - if I do say so myself.

I am not quite sure why you are talking about liabilities, VAT returns and monies paid to accountants ? That wasn't the question. The question was the additional tax required on dividend payments.

And, I will repeat it again, if you sneak into the first upper tax bracket and take dividends ? Then you should put away 25% or so for the extra amount you will be asked to pay when you complete your tax return. Even the taxman tellls you so.

Anyway - I was just making the point that it is clear many people who pay themselves dividends do't know thsi basic stuff. I suppose if you pay an accountant then you don't have to. Then again knowing roughly what is due to be paid and when is rather re-assuring. Some accountants do make mistakes.

Smartypants over and out.