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bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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I currently am a company director . I want to pay myself 120k

Customer Question

I currently am a company director . I want to pay myself 120k a year . What is the best way to do this from a tax point of view .
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

I have to tell you that as a company director you are an employee per se and the only way you can be paid is through PAYE with all the taxation and NI costs associated. The company can offset these wages and the employer's element of the NI against Corporation Tax (CT).

However, all is not lost. You can make personal pension contributions of up to 100% of your salary subject to a maximum of 50K per tax year, 40K from next tax year. This top slices your income for tax purposes. You can even, especially in a SIPP, use up to three years previous unused allowances too.

The company may also make unlimited contributions to your pension plan and these too are allowable against CT. You should seek independent advice through a local trusted, licensed financial adviser to obtain the best pension arrangements for you and for the company to minimise the overall tax liability.
Customer: replied 2 years ago.

Hi Keith


 


Currently i get paid mainly through dividend . And its not paid through PAYE .? Ive just completed my tax return and paid the amount due on 31st Jan etc .


 


I just wanted to know a ball park figure on personal tax if i was to pay myself 120k dividend .


 


Thanks Keith


 


James

Expert:  bigduckontax replied 2 years ago.

Right, I had failed to mention dividends which as you know are charged at a notional 10%, but in your hands give you a tax credit. However, if your income goes into higher tax brackets then it is grossed up for tax. Dividends are not available as a charge against profits in the CT computation. If you paid yourself 125K the first effect would be that your personal allowance for Income Tax (IT) purposes would be lost. Assuming no other income flow the full amount would be taxed at 20% for the first GBP 32010 and 40% thereafter. I compute the tax charge to be of the order of GBP 43598. There would be the tax credit of the 10% of the dividend to offset this. The bill will be fairly hefty, but it can be mitigated substantially through pension contributions. Beware though, pension contribution levels are set against salaries not against dividends. You are in danger of allowing HMRC to push the biggest shovel they can find into both your company's CT and your IT positions. You must seek independent financial advice, it could save you and your company a small fortune in tax.

bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3119
Experience: FCCA FCMA CGMA ACIS
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
Expert:  bigduckontax replied 2 years ago.
Deep apologies, I made an error in my calculations. a colleague has just reminded me. The tax charge is only likely to be of the order of GBP 40625, sorry. Only loose change I agree, but might just pay for a week in the sun on a package holiday! Location recommendations from this source will cost extra!

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