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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have been self inployed few years so I no how my

Customer Question

Hi I have been self inployed for a few years so I no how my tax works that way
But I am about to change the way I am being paid it will be monthly then to dividend
Payments so for example let's say £1300 amount after pay as you earn £1148 so £13776 a year all tax and stamp payed then I will resive a dividend of £5440 do I have to pay tax on this plus does it effect my tax credits after entering a figer of £13776 earnings ? Please advise thank you
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you.
Expert:  TonyTax replied 1 year ago.
Hi again.

In a full tax year, your earnings will be £15,600 before tax. That's the figure you use for tax credit purposes. Dividend income wll also count for tax credit purposes but you can deduct £300 from the total. A £5,440 cash dividend grosses up to £6,044 with a notional 10% tax credit added.

If you received 12 dividend payments of £5,440 in the current tax year, 2015/16, as well as your salary, your total income wouild be £88,133 (£15,600 + £72,533)you would pay higher rate tax on the dividends of £10,293.30, payable on 31 January 2017. You would also need to make a payment on account of your liability for 2016/17 of £5,146.65 on each of 31 January 2017 and 31 July 2017 but these can be reduced if your think your income for that year will be lower than that for 2015/16 on which the payments on account are based.

Take a look here for information on how dividends are taxed:

https://www.gov.uk/tax-on-dividends/overview

From 2016/17, the way dividends are taxed is changing. There will no longer be a 10% notional tax credit so the £5,440 figure will be the gross dividend income, not £6,044. The new dividend tax regime is detailed here:

https://www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet

Assuming your income is 2016/17 is the same as that for 2015/16, your dividend tax liability will be £13,991. Use the calculator here to play around with different dividend figures:

http://www.contractorcalculator.co.uk/Dividend_Tax_Changes_Impact_Calculator.aspx

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
It would only be two dividend payments of £5400 not 12
It was just with reading a lot of chatter on the net a lot of people were saying they get more money of tax credits this way then just showing a figer of £21,040 at the end of the year
Expert:  TonyTax replied 1 year ago.
The lower your income is the higher your tax credits will normally be but dividends paid to you are taken into account in working out what you are entitled to.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15880
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
Hi me and my brother are setting up a company both owning half the idea
Is to take a low wage to start with then top the money up with divedents but to do this I believe the company has to be ltd
Can we both just be self employed take a wage then at a later point just take some more money out of the business with out having to be ltd or having to mess around with divedents
Expert:  TonyTax replied 1 year ago.
You can only have dividends if you have a limited company.

If you are self-employed or in a partnership with your brother, you don't pay tax on drawings of cash to live on. You pay tax and NIC on your respective shares of the business profit. Obviously, if the business makes no profit, you will find that you either have an overdrawn business bank account or no cash in the business if you have drawn too much out.
Customer: replied 1 year ago.
So if the company earned £100,000 I would have to pay tax on£50,00 so would my brother this would completely mess up my text credits so we would be better going ltd were the company still pays tax on earnings but I will only pay tax on what I pay my self there for keeping a low wage and still getting my tax credits
Expert:  TonyTax replied 1 year ago.
So long as you don't draw income out of a limited company, your tax credits should be safe.

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