Liz
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Post by Liz on Sept 27, 2016 22:15:50 GMT
I currently invest in P2P and am likely to earn about £14k from P2P after losses this tax year. OK simple so far I can earn £17k(11+5+1) without paying tax. From later this year I will be a company director of a new LTD company and will be earning dividends, the question is what tax would I pay if I earned £4k of dividends(likely first year) and what tax would I pay if I earned £12K of dividends, when I self asses. Please link me to the relevant info & site, as I know noone can give tax advice, anything posted, I realise is for information purposes only. Thanks in advance. Just for info, there will be 2 directors with equal shareholding. I'm thinking the £5k low income savings tax allowance is affected, as my income will rise with the dividends  I have got as far as the tax on dividends of £12k is £712.50(sharing the dividend allowance), but i'm confused as to how that dividend affects the £5K savings allowance, as my income is higher. |
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Liz
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Post by Liz on Sept 27, 2016 22:54:44 GMT
I currently invest in P2P and am likely to earn about £14k from P2P after losses this tax year. OK simple so far I can earn £17k(11+5+1) without paying tax. From later this year I will be a company director of a new LTD company and will be earning dividends, the question is what tax would I pay if I earned £4k of dividends(likely first year) and what tax would I pay if I earned £12K of dividends, when I self asses. Please link me to the relevant info & site, as I know noone can give tax advice, anything posted, I realise is for information purposes only. Thanks in advance. Just for info, there will be 2 directors with equal shareholding. I'm thinking the £5k low income savings tax allowance is affected, as my income will rise with the dividends I have got as far as the tax on dividends of £12k is £712.50(sharing the dividend allowance), but i'm confused as to how that dividend affects the £5K savings allowance, as my income is higher. My understanding for a £12k dividend is, I lose the £5K allowance(as my income is £26K) and will be left with £11+1K of tax allowance, hence pay £400(20% on £2K) tax and £712.5 dividend tax. So the effective tax rate on my £12K dividend is 9.3%(1112.50/12000). Until I can start sticking my cash in P2P ISA's, or the P2P bubble pops!
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 27, 2016 23:21:40 GMT
I currently invest in P2P and am likely to earn about £14k from P2P after losses this tax year. OK simple so far I can earn £17k(11+5+1) without paying tax. From later this year I will be a company director of a new LTD company and will be earning dividends, the question is what tax would I pay if I earned £4k of dividends(likely first year) and what tax would I pay if I earned £12K of dividends, when I self asses. Please link me to the relevant info & site, as I know noone can give tax advice, anything posted, I realise is for information purposes only. Thanks in advance. Just for info, there will be 2 directors with equal shareholding. I'm thinking the £5k low income savings tax allowance is affected, as my income will rise with the dividends I have got as far as the tax on dividends of £12k is £712.50(sharing the dividend allowance), but i'm confused as to how that dividend affects the £5K savings allowance, as my income is higher. My understanding for a £12k dividend is, I lose the £5K allowance(as my income is £26K) and will be left with £11+1K of tax allowance, hence pay £400(20% on £2K) tax and £712.5 dividend tax. So the effective tax rate on my £12K dividend is 9.3%(1112.50/12000). Until I can start sticking my cash in P2P ISA's, or the P2P bubble pops! What about the £5k dividend allowance? (referred to in OP but personal not shared) So you only pay tax on 7k @7.5%. Otherwise figures look right Info & examples here www.gov.uk/tax-on-dividendswww.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet#examples
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Liz
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Post by Liz on Sept 27, 2016 23:30:16 GMT
I was using half of the dividend allowance in my calculation, but I now think I will get my own £5k allowance and not need to share it with the other director. So dividend tax will be £525(7K@7.5%), not £712.50(9.5K@7.5%)
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ilmoro
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'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
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Post by ilmoro on Sept 27, 2016 23:38:37 GMT
I was using half of the dividend allowance in my calculation, but I now think I will get my own £5k allowance and not need to share it with the other director. So dividend tax will be £525(7K@7.5%), not £712.50(9.5K@7.5%) Yes, updated original post as missed that bit in original post. Calculator here agrees www.itcontracting.com/calculators/2016-2017-dividend-tax-increase-calculator/Put in salary as £13k to take account of £1k savings allowance on 14k p2p interest and ignore NI bits
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jonah
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Post by jonah on Sept 28, 2016 7:17:42 GMT
I was using half of the dividend allowance in my calculation, but I now think I will get my own £5k allowance and not need to share it with the other director. So dividend tax will be £525(7K@7.5%), not £712.50(9.5K@7.5%) Divided allowance is per person not per company. Imagine the calculation if it was per company for a ftse 100 listed share...
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Post by propman on Sept 28, 2016 8:23:24 GMT
I was using half of the dividend allowance in my calculation, but I now think I will get my own £5k allowance and not need to share it with the other director. So dividend tax will be £525(7K@7.5%), not £712.50(9.5K@7.5%) Just in case people think this is too good to be true, corporation tax would also be due on the company's income. The rate will depend upon the year end, but the 2016/7 rate is 19%.
- PM
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Liz
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Post by Liz on Sept 28, 2016 10:42:32 GMT
I was using half of the dividend allowance in my calculation, but I now think I will get my own £5k allowance and not need to share it with the other director. So dividend tax will be £525(7K@7.5%), not £712.50(9.5K@7.5%) Just in case people think this is too good to be true, corporation tax would also be due on the company's income. The rate will depend upon the year end, but the 2016/7 rate is 19%.
- PM
Unless you offshore  Yes of course Corporation Tax will have already been paid by the company, which is a separate legal entity. Bring on 17%.
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Post by mrclondon on Sept 28, 2016 11:25:15 GMT
Liz have you been following the "Investing in P2P as a Limited Company" thread ? , specifically this post by SteveTIf you have accrued less than the maximum 35 years of national insurance contributions, it may be worth considering becoming an employee of the limited company on an annual salary of c. £6k (i.e. > than LEL ). Yes, you will end up paying some income tax, but at an effective rate of (20 - 7.5%) given you would have been paying dividend tax on that amount, giving an extra 1/35 of state pension (c. £230 pa at present values). Even if the limited company was not intending to have any employees, the admin overhead of employees is not that great as free HMRC compliant payroll software is available for micro businesses.
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Liz
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Post by Liz on Sept 28, 2016 11:40:45 GMT
Liz have you been following the "Investing in P2P as a Limited Company" thread ? , specifically this post by SteveT If you have accrued less than the maximum 35 years of national insurance contributions, it may be worth considering becoming an employee of the limited company on an annual salary of c. £6k (i.e. > than LEL ). Yes, you will end up paying some income tax, but at an effective rate of (20 - 7.5%) given you would have been paying dividend tax on that amount, giving an extra 1/35 of state pension (c. £230 pa at present values). Even if the limited company was not intending to have any employees, the admin overhead of employees is not that great as free HMRC compliant payroll software is available for micro businesses. Thanks mrclondon, I was intending to read that, haven't before as this is a very new opportunity from redundancy later this year. Yes the plan is to both take a salary upto the personal allowance when I can ISA all of my P2P investments, but I don't need to worry about NI contributions for a few years because I get the credits from having young children, the youngest are 5. Good tip on payroll software, will look into it.
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SteveT
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Post by SteveT on Sept 28, 2016 11:47:37 GMT
I agree that HMRC's own Basic PAYE Tools software does the job nicely for micro businesses with a handful of employees. For admin simplicity, I simply make a monthly "Period with no employee payments" submission from Apr - Feb (each takes about 2 minutes) and then draw the annual salary in one go in March. The year-end close-out process takes maybe 20 minutes (now I know what to do!)
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amphoria
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Post by amphoria on Sept 28, 2016 13:38:23 GMT
I currently invest in P2P and am likely to earn about £14k from P2P after losses this tax year. OK simple so far I can earn £17k(11+5+1) without paying tax. From later this year I will be a company director of a new LTD company and will be earning dividends, the question is what tax would I pay if I earned £4k of dividends(likely first year) and what tax would I pay if I earned £12K of dividends, when I self asses. Please link me to the relevant info & site, as I know noone can give tax advice, anything posted, I realise is for information purposes only. Thanks in advance. Just for info, there will be 2 directors with equal shareholding. I'm thinking the £5k low income savings tax allowance is affected, as my income will rise with the dividends I have got as far as the tax on dividends of £12k is £712.50(sharing the dividend allowance), but i'm confused as to how that dividend affects the £5K savings allowance, as my income is higher. I am in a very similar position this tax year as my income is almost entirely made up of bank interest, P2P interest and dividend income. After a lot of research, I currently believe that dividend income does not count as non-savings income nor savings income. Thus dividend income does not reduce the Starting Rate for Savings, but also cannot be set off against the Starting Rate. Unfortunately I have not been able to find any examples that conclusively back me up either in the HMRC Savings and Investment Income Manual or elsewhere. The only evidence that supports my view is the 2016/17 What If Planner from Taxcalc. The following is a slightly contrived example taken from the What If Planner, illustrating that the £5,000 Starting Rate for Savings is available to offset interest (including P2P interest), with the only tax payable on the dividend income. Income received (before tax taken off) Pay from all employments 8,789.00 Interest received from UK banks and building societies 8,053.00 Dividends from UK companies 13,703.00 Total income received 30,545.00 minus Personal Allowance (11,000.00) Total income on which tax is due 19,545.00 Interest received from a bank or building society etc. 5,000.00 x 0% = 0 842.00 x 0% = 0 Dividends from companies etc. 5,000.00 x 0% = 0 8,703.00 x 7.5% = 652.72 Total income on which tax has been charged 19,545.00 Income Tax due 652.72
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SteveT
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Post by SteveT on Sept 28, 2016 14:05:25 GMT
I struggle to see how that can be the case. HMRC guidance below states that dividend income forms part of total income when assessing tax bands. By definition, dividend income is not part of savings income, so if "non-savings income" is your income excluding savings income then my assumption is that dividend income must be included in "non-savings income". But I'll agree that it's far from clear! www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheet |
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Post by mrclondon on Sept 28, 2016 15:23:16 GMT
My understanding matches the TalCalc what if example quoted by amphoria and that is non-savings income excludes dividend income, and hence non-savings income is effectively "earnt" income + benefits + pensions. |
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tomtom
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Post by tomtom on Oct 2, 2016 7:38:07 GMT
I struggle to see how that can be the case. HMRC guidance below states that dividend income forms part of total income when assessing tax bands. By definition, dividend income is not part of savings income, so if "non-savings income" is your income excluding savings income then my assumption is that dividend income must be included in "non-savings income". But I'll agree that it's far from clear! www.gov.uk/government/publications/dividend-allowance-factsheet/dividend-allowance-factsheetCan you please say if income from P2P will be classed as saving income or dividend income?
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