Directors Dividends

[dhh1968]

Hi, my husband is currently a salaried director and someone has said that it would be better for him tax wise to receive dividends. I wonder if someone can enlighten us on dividends (1) how do you receive a dividend (2) can a dividend be received on a monthly basis and (3) what are the tax implications?

[Aftab]

Hello,
It is good that you should consult your accountant if any,

Well it is good to take salary of minimum level to avoid nic and income tax i-e 5500/month,

Yes, you can take dividend every month or any time, but this includes very serious issues, you shouldn `t be end up owing to the company, because then it will be treated as `loan to participitor`.

So, from tax planning point of view you should take enough dividend so that your basic rate band should be utilised, therefore you will end up by paying nothing.

Regards,

Muhammad Aftab

[RAL]

Hello,

Well it is good to take salary of minimum level to avoid nic and income tax i-e 5500/month,

If you take £5500 a month, you would end up paying lot of taxes and ni's. Even if you take £550, still is not tax efficient.

Yes, you can take dividend every month or any time, but this includes very serious issues, you shouldn `t be end up owing to the company, because then it will be treated as `loan to participitor`.

Not quite correct. There is nothing wrong with taking monthly dividend. As long as you do proper paper work i.e. declare dividend, minutes ets. If you take more than you should have, then it would be "Illegal dividend" you may have to pay back to the company.

So, from tax planning point of view you should take enough dividend so that your basic rate band should be utilised, therefore you will end up by paying nothing.

There is one issue you need to consider is state benefits and state pension if you take low salary. Generally minimum wages do not apply to the director, however if your husband has a contract with the company, he may have to consider whether minimum wages apply to him

[wamstax]

Of course in all this it would be necessary for your husband to be a company shareholder before he can receive dividends - not a shareholder then no dividend possible.

In all these type of situations it is necessary for someone with the necessary experience to consider dividends (interim or final) and all the potential tax and other financial repercussions of such being voted or declared and paid. I have seen numerous accountants who have failed to appreciate the legal and tax implications of declaring and paying dividends only to get their client company and directors into trouble.

Beware of anybody telling you they know the answer without detailing the implications of dividends and displaying the results in examples that you can understand.

[Incredulum]

Not quite correct. There is nothing wrong with taking monthly dividend. As long as you do proper paper work i.e. declare dividend, minutes ets.

That's a very brave statement, isn't it? It has always been suggested that dividends should not be paid monthly, but instead no more frequently than quarterly, owing to a risk that they may be recategorised as earnings. Now, I think it's quite difficult to find a practitioner who has a client who has been attacked on this front. However, there is a case going through the courts currently, PA Holdings Ltd which currently, I think, is being appealed, which suggests that a degree of caution is to be recommended on this front.

http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00063.html

At the very least, a dividend may turn out to be recategorised and deemed to be earnings for NI purposes.

[robbob]

hello dhh


Is your husband a sole director of his own limited company?
Was the company incorporated with a specific amount of shares that were "subscribed too" by your husband at or about the time the company was set up?

[clarks]

Avoid paying dividends on a monthly basis - HMRC will view this as a salary tax dodge - go for Quarterly dividends