A friend of mine has taken £54000 out of her company in a mixture of dividend and wages (wages will be £7776 by end of year) - she is now worried about her personal tax bill as she never saves anything!
As a Director would the calculation be along the lines of :-
personal allowance £9440 - nil tax
so wages - no tax
£7777 to £9440 - 0% on dividends (ie rest of personal allowance)
£9441 up to £32010 - 10% on dividends (=£22570 @10% = £2257)
no, I think that you've forgotten grossing up and tax credits.
you say that she has actually taken £54k implying that was the cash received in which case you have missed out the grossing up step.
Always do tax calculations, even simple one's like this by slotting the figures into a standard pro forma
Sure that your clients going to like the sound of £3.8k better than £9.4k (I appreciate that your 9.4k was actually comparable to my 8.95k rather than the 3.8k).
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Don't forget that the above is only the personal tax calculation on your freinds income (which is how the question was phrased).
I've already had a new client in this morning who though that a dividend was an expense the same as salary which reminded me of this thread.
Dividends are paid from profits (no profit or reserves = no dividend) so there will also be Corporation tax to consider on the £51,360 (so potentially £10,272 in CT which your freind may have forgotten about).
Advise your freind that the real saving by using dividends is National Insurance, not tax.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I did remind her she needed to make a profit, she was panicking about being in the 40% personal tax bracket. Told her also to speak to her Accountant. Thank you again.
