A reminder to you all that there is now tax on dividend! This has been the case since 6 April 2016. The tax-free dividend allowance is £5,000 currently in the 2017/18 tax year (up to 5 April 2018). This is reducing to £2,000 for 2018/19 (from 6 April 2018). What I have done is gone through some examples below of how much dividend you can take while remaining in the basic rate threshold of 7.5% on the dividend. The below assumes no other income besides salary and dividend. Remember dividend is the last income item to be taxed, therefore, if you have property rental income the below would not apply to you.
You can take more than the basic rate threshold in dividend and the below is just given as guidance. I have listed out below some useful hints and tips.
1) As a basic rule move 20% of your revenue into a separate business savings account and use this to pay your corporation tax. The remaining 80% is available for you to take out in a combination of reimbursed petty cash expenses, salary and dividend.
2) You must maintain enough money in the company account to pay your corporation tax. Cash and accounts work on two separate principles. Cash works on an actuals basis. Accounts work on an accruals basis meaning that at your year-end there will be liabilities which are outstanding (the biggest of which is corporation tax) and the Company must hold enough money to pay these liabilities. If it doesn’t then effectively you have taken the ‘would be corporation tax’ money out as a Directors Loan.