The director of the company I do books for is paid a low salary below the upper earnings limit topped up with dividends which are tax free till £5000 above the personal allowance. However, the director has commenced self employment in an unrelated kind of work. So what I would like to clarify for when I do his personal tax return is would he just pay NIC on his self employed profit? And I guess more of the dividend would be taxable as more of the personal allowance has been used?
Hi Maddy The divi allowance is changing, so beware of that.
You really need to run the numbers based on a number of different scenarios to work out the best way to keep the tax bill down. If in doubt, pass it on to someone who is already qualified otherwise you could end up with a claim against your PII.
-- Edited by Cheshire on Wednesday 29th of November 2017 10:06:18 PM
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Joanne
Winner of Bookkeeper of the Year 2015, 2016 & 2017
Thoughts are my own/not to be regarded as official advice,which should be sought from a suitably qualified Accountant.
You should check out answers with reference to the legal position
Dividend tax has a nil rate for the first £5000 (changing to £2000 from April 2018) This is not affected by self employment. Any self employed profit of £6025 or above will attract Class 2 NI (which is due to be abolished from April 2019) and any self employed profit of £8164 or above will attract class 4 NI which is currently 9%
As Joanne says, It would depend on what profit he was making as to how you would utilise the remaining personal allowance, which may even include revisiting the current low salary / high dividend model on his Ltd Co.
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John
Any advice given is for general guidance and professional advice should be sought applicable to your circumstances.
