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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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, I am the sole director and full-time employee of my

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Hello,
I am the sole director and full-time employee of my company Lakes Renewables Ltd. Over the past year I have paid myself a minimum wage of £664/month. At the end of the year my company is forecast to produce a net profit of approx £20k. What the most tax efficient way of taking this money out of the company? Many thanks, Ben
Hello and welcome to the site. Thank you for your question.

You are a sole director and employee of your company and draw a modest salary to cover personal allowance. You also have some rental income. These two added together cover your personal allowance.

You company is projecting a net profit of £20k.. say £16k after tax. If company cashflow permits, you could take this amount (up to £16k) as dividends paid and not pay any more tax on dividend income. Dividends carry a notional tax of 10%. As your total income after personal alloance would remain under the threshold for basic tax (£31,865).. the net dividend of £16k would not have any further tax liability in your hands.

I am aware certain lenders are happy to consider profit before tax and salary drawn as total income for mortgage purposes.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 3 years ago.

Hi thanks for your answer - please can you just clarify the dividend 'notional' tax you mention above. How does this work?

Many thanks.

Ben, thank you for your reply.

What you receive as dividend isnet amount after a notional tax at 10%.

So, for income and tax calculations purposes, the figure is grossed up to 100% and you are given a tax credit of 10% against your tax calculation resulting in zero impact, provided you are basic rate taxpayer.

So if you receive £9,000 in your hands it is equivalent to have received £10,000 with a tax credit of £1,000.

More information on thi scan be found here

http://www.which.co.uk/money/tax/guides/tax-on-savings-and-investments/dividend-tax/


I hope this is helpful and answers your question.
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