I am just reminding myself how this all works and would be grateful if someone could confirm my understanding:
Dividends are only payable out of distributable reserves
They tend to be paid interim and final
To declare a dividend the directors need to hold an EGM or is it just noted in the AGM?
For a director to minimise his tax bill, he would pay himself a salary that was below the point at which NI was paid and then top this up with a dividend at some point in the year. Is it still the case that you can pay a dividend up to the higher tax band and not attract further tax as company would have been tax corporation tax?
Is there any thing else that I need to think about, ie relevant paperwork that needs to be completed when a dividend is paid etc etc.
I am just reminding myself how this all works and would be grateful if someone could confirm my understanding:
Dividends are only payable out of distributable reserves
Thats the correct way yes, although some directors take a dividend without knowing if there will be sufficient profit
They tend to be paid interim and final Yes
To declare a dividend the directors need to hold an EGM or is it just noted in the AGM? A meeting should be held, a dividend agreed and minutes recorded. A dividend voucher should be issued.
For a director to minimise his tax bill, he would pay himself a salary that was below the point at which NI was paid and then top this up with a dividend at some point in the year.
A salary should be taken up to the personal allowance to gain full tax advantage.
Is it still the case that you can pay a dividend up to the higher tax band and not attract further tax as company would have been tax corporation tax?
I am just reminding myself how this all works and would be grateful if someone could confirm my understanding:
Dividends are only payable out of distributable reserves Yes
They tend to be paid interim and final Yes
To declare a dividend the directors need to hold an EGM or is it just noted in the AGM? Just need a board minute and dividend certificate
For a director to minimise his tax bill, he would pay himself a salary that was below the point at which NI was paid and then top this up with a dividend at some point in the year. Is it still the case that you can pay a dividend up to the higher tax band and not attract further tax as company would have been tax corporation tax? Yes salary of £7956 per year and rest as dividends up to higher rate band which equates to maximum dividend of about £30,500. Subject to there being distributable profits after tax to cover the £30,500 dividend.
Is there any thing else that I need to think about, ie relevant paperwork that needs to be completed when a dividend is paid etc etc. No just dividend certificate and minute
But be careful with the advice if it's a PSC which may come under IR35 legislation making dividends only available out of the 5% allowance for expenses associated with running the business.
kind regards,
Shaun.
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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.
The salary should be £10,000 in line with the personal allowance. The introduction of the Employment Allowance means you won't have to pay Employer's National Insurance (up to £2,000) so the cost of the Employee's National Insurance will be outweighed by the saving in Corporation Tax.
Of course, if you have already used your employment allowance on other employees, the salary should stay under the national insurance limit.
It's a bit late on this topic, but another reason for using the personal allowance limit rather than the NI limit is that the payment of NI means that if this is the director's only employment, the year will count towards their basic state pension.
