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How to set up a company

Dividend

Using dividends as part of a tax efficient remuneration strategy is an important part of basic tax planning, and a good accountant should be able to advise you on different combinations.

Dividends are paid out of after tax profits and attract a lower rate of tax than salary. In the year 2012/13 provided you take a salary up to the NIC Secondary threshold of £7,488 you can take a further £31,500 as dividend free of any further tax. Please note, that dividends paid by the company are grossed up by a notional 10%, so £31,500 paid out by the company, will appear on your personal tax return as £35,000. However, this has no real effect, as you get this 10% back as a “tax credit”.

Should you require dividends above this basic rate of £31,500, they are taxed effectively at only 25%.

However, to avoid illegal dividends payments you must ensure for each dividend there are sufficient profits in the business, a board minute and a dividend voucher.

Using our online accounting software makes this whole process simple as it tells you how much profit you have available for dividends and even draws up a board minute and dividend voucher for you. It really does make life easier and less stress free.

Next: “VAT”
Any questions? Speak to one of our friendly accountants on 020 7969 2879.