Payment of Dividends - The Book-keepers Forum (UK)

Kitty37 · Senior Member

Payment of Dividends

BudgetB · Guru

The tax has to be taken into account first. If there's no profit left after that then dividends cannot be paid.

Kitty37 · Senior Member

Thankyou very much for your response and clarification. smile

BudgetB · Guru

No problem.

How is their CT bill bigger than the profits it's calculated from?

Kitty37 · Senior Member

They have been paying themselves interim dividends throughout the year

Kitty37 · Senior Member

Hi - just to clarify further - the profits are much bigger than the CT bill.

BudgetB · Guru

Ah ok. So the dividends paid so far have actually exceeded the ultimate profit that they've made?
They should be sure to keep evidence of how much profit they were expected to make when the dividends were agreed in order to deal with any queries from HMRC once the accounts have been submitted.

Kitty37 · Senior Member

Good point - yes, I will ensure that we keep a record of the expected profit throughout the year. Thankyou for your help and advice.

BackOfficeGroup · Guru

and also make sure you have the minutes of the meetings that agreed to pay the dividends and the dividend vouchers to boot!

P

Kitty37 · Senior Member

Ah yes, another excellent point. Thankyou

MG Group · Member

Just on a related point to payment of dividends, does anyone have any advice in relation to whether it is better for a 100% shareholder of an Irish company to pay themselves in dividends or salary?
Thanks
Gavin

luther parker · Veteran Member

Hi there,

You only pay dividends on your tax profits.

Luther.

MG Group · Member

Hi Luther,
Are you saying that you only pay dividends out of profits available for distribution? I am aware of this, but just wondering if there is a level at which there is PAYE/NI on drawing a salary and whether it is more tax efficient for an Irish trading company to withdraw dividends rather than salary if the employee/director is also the 100% shareholder in the company.
Thanks
Gavin

luther parker · Veteran Member

Hi Gavin,

'I will get back to you at some point' - bit busy at mo. but my reply was to Kitty37.

Thanks

Luther.

luther parker · Veteran Member

Hi Gavin,

Not sure if I can totally help you - but I'll have a go;

Asuming you have no other income and as you know your tax-free personal allowance is I think just over 6k, so in a company where you have corporation tax is 21%, it is generally more tax efficient to take(draw) any other income from your company as a Dividend than a Salary. If your company is paying a higher corporation tax, then I would say a Salary is probably more efficient than a Dividend. so as for an Irish Trading Company, not 100% sure but probably would work on the same principles.

Sorry..I can't help you much.

Luther

MG Group · Member

Thank you Luther for your reply. I think it should work on similar lines, but really need to know the figures and rates for Irish situations.
Thanks again
Gavin

luther parker · Veteran Member

Thanks Gavin - sorry I can't help you. Have you tried asking James from ICB, you may have to look up one of the other forum..goodluck!

Luther.

john Boy · Veteran Member

it is generally most tax efficient to take a salary up to the lower earnings limit so the director get the NI contributions but niether the company or director have any NI to pay.

The dividends are not allowable for tax and so the profit it is paid out of would be charged at 21% (assuming) a small company but the individual pays tax at 10% However the tax credit is nominal and actually stays in the comapany. Even when the dividend gets over the 45k mark it is taxed at 32.5% rather than the higher rate of 40% or even 50% now.

The dividend is not subject to NI from either party.

The most tax effficient way to get money out of a company is for the company to make payments to the individuals pension as this is tax allowable but is tax free benefit for the employee. They would need to find some cash to live of however!!!!

hope this helps some what, but as ever it will always depend on the persons circumstances.

MG Group · Member

thank you very much for the reply, much appreciated. I am aware of these rules and rates from a UK perspective, but my question is in regard to Republic of Ireland. is it the same situation there as in the UK? has anyone got experience of acting for a contractor operating through a Ltd company in Republic of Ireland?
Thanks
Gavin

luther parker · Veteran Member

I think I had a similar answer John boy, but with a less twist of lemon, but the question is about the Irish ltd company situation!

semsley · Guru

All I know from listening to the news today is that corp tax in Ireland is only 12.5% rather than the 21% in the UK.

HTH

ADAS · Guru

Looks a lot more complex than the UK system

http://www.finfacts.ie/taxfacts.htm#incometax

http://www.finfacts.ie/taxfacts.htm#corptax

In Ireland, companies paying dividends must generally withhold tax at the standard rate (as of 2007[update], 20%) from the dividend and issue a tax voucher to include details of the tax paid. A person not liable to tax can reclaim it at the end of year, while a person liable to a higher rate of tax must declare it and pay the difference.