Tax on Director's Dividends

[weegirl]

I am a bookkeeper, not a tax professional, but have received a query from a business startup that I am hoping I can answer.

My client will probably be in the 40% tax bracket this year. I have been told that he would be better off forming a limited company, rather than sole trader due to the co-operation tax rate of 21% for small business (he will be nowhere near the £300,000 threshold). However, I am not sure that this will be any benefit to him.

I know that being a director, he can use up his employee PAYE threshold, pays 21% cooperation tax on the net profits, and can then take payment in dividends, but am I right that he has to pay a further 10% again on his dividend payments up to £37,400, then 32.5% over that? Hardly worth it if this is correct.

Thanks for any clarification on this. Unfortunately the HMRC has been passing me round in circles with this query, it appears no-one has the expertise to advise me on this matter within the Revenue.

[pawncob]

Try this thread:
http://www.taxationweb.co.uk/forum/income-tax-corporate-tax-vat-t28637.html?hilit=dividend%20tax%20rate

[RAL]

WG

Just a word of caution (advice), if you are not sure, then please do not advice. Not all start up are successful, it can go horribly wrong, if the client were iladvise, you are looking at PII claim.

[Incredulum]

Thanks for any clarification on this. Unfortunately the HMRC has been passing me round in circles with this query, it appears no-one has the expertise to advise me on this matter within the Revenue.

With the greatest of respect, it is not their responsibility to advise you. You really shouldn't be trying to advise a client by picking up information that you don't really understand: not least from an internet chat forum where any weirdo is free to post rubbish - and how would you know?

[Incredulum]

I don't think any PII would pay out on this.

In fact, I don't think OP could obtain PII to cover this.

[RAL]

But client can sue for damages for negligent and ill-advice.

To Incredulum, you may be interested in reading following threads! The went mad when I told him/het that op was out of depth there to deal with the shares buy back! OP claimed to be an accountant and did not know the journal!

http://www.taxationweb.co.uk/forum/purchase-of-shares-by-one-director-from-another-t26847.html?hilit=journal

[weegirl]

With the greatest of respect, it is not their responsibility to advise you. You really shouldn't be trying to advise a client by picking up information that you don't really understand: not least from an internet chat forum where any weirdo is free to post rubbish - and how would you know?[/quote]

You appear to assume that as I am a bookkeeper I am incapable of learning about this subject, which is plain snobbery on your part. With the greatest of respect, I am not an idiot and am perfectly capable of throughly checking any answers I receive before I advise anyone. We are talking about dividend rates here, it is hardly rocket science.

I am aware this is a public forum, with any 'weirdo' able to post. However, I am trying to save my client, who is also a friend, from getting charged an absolute fortune which he cannot afford at present.

As for the HMRC, I am aware that they do not advise on such matters, but would have thought they would have been able to inform me on the appropriate rates of interest due on dividends. If my internet was working, I would have looked these up myself, I am posting this message from my phone at present which is not really any good for browsing.

My client has already tried to get an answer from a chartered accountant, who gave him vague answers, so not much help there then, so much for his qualifications.

I have received enough information from another post to answer my queries, thank you Ral for pointing me in the right direction.

[Incredulum]

But client can sue for damages for negligent and ill-advice.

Indubitably. But you miss my point:

1) A bookkeeper probably cannot obtain PII for giving advice such as this
2) Even if BK has PII, it wouldn't be very happy to pay out on the back of this set of circumstances.

Just because, OP, you're not being paid, doesn't mean your friend mightn't sue you when it all goes wrong.

[RAL]

Indubitably. But you miss my point:
[/incredulum]

No, I do not.

1) A bookkeeper probably cannot obtain PII for giving advice such as this

Yes, bookkeeper can get PII. I have seen many bookkeeper with practising certificate issued by bookkeepers body and have PII too.

2) Even if BK has PII, it wouldn't be very happy to pay out on the back of this set of circumstances.

Not only PII, If insurance company get away, they would not pay on any insurance policy.

Just because, OP, you're not being paid, doesn't mean your friend mightn't sue you when it all goes wrong.

Agreed. Even if you give free advise in pub while having a drink, this still will be a professional advice and can be sued.

[RAL]

I have received enough information from another post to answer my queries, thank you Ral for pointing me in the right direction.

I think you have to thank "pawncob" for seaching and providing a link. I know I commented in that thread but "pawncob" found it for you.