SteveT
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Post by SteveT on Oct 2, 2016 7:50:13 GMT
Can you please say if income from P2P will be classed as saving income or dividend income? Standard P2P loans pay interest (not dividends). "Income from P2P" is a rather looser term as it could include capital gains from buying and selling loans, cashback incentives, etc. For most personal lenders, the bulk of income generated from P2P lending will be untaxed interest, akin to bank / building society interest, and so treated as savings income.
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stevio
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Post by stevio on Oct 3, 2016 15:52:51 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-factsheetI think that is too many assumptions Non-savings income does NOT include dividends. Generally your earnings or non-savings income is treated as being taxed first, then your savings income and then your dividends (Income Tax Act 2007, s 16)
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stevio
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Post by stevio on Oct 3, 2016 16:05:33 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 Just to to point out that there is the SAVINGS STARTING RATE BAND = £5,000 but also the PERSONAL SAVINGS ALLOWANCE = £1,000 Qualify for SSRB if NON-SAVINGS INCOME (eg salary but not dividends) is below £16,000 Qualify for PSA if SALARY AND SAVINGS (not Dividends) income is below Basic Rate Tax Band £43,000 This looks like the best split for least amount of tax (you can modify the salary depending on saving income): £5,824 Salary (No IT or NI and still qualify for state pension contribution) £5,176 Savings income (using remainder of 11K personal allowance so no IT or NI) £5,000 Savings Income (SSRB) £1,000 Savings Income (PSA) £5,000 Dividend (20% CT, but no IT or NI) In this way there is no IT or NI, only 20% CT on £5k dividend
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Liz
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Post by Liz on Oct 3, 2016 17:34:12 GMT
stevioAm I right that dividends from a Limited company don't disqualify me from benefiting from the £5000 Starting Rate Savings Band. So in effect I can earn; £17,000 from p2p and pax no Income Tax, despite earning Dividends from a Limited company, of say £5,000(or even £20k of dividends)
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stevio
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Post by stevio on Oct 3, 2016 18:38:06 GMT
stevioAm I right that dividends from a Limited company don't disqualify me from benefiting from the £5000 Starting Rate Savings Band. So in effect I can earn; £17,000 from p2p and pax no Income Tax, despite earning Dividends from a Limited company, of say £5,000(or even £20k of dividends) There is now a 7.5℅ tax on dividends above 5k up to the basic rate tax band and 32.5℅ in higher tax band. Add this to the 20℅ CT, your effectively paying 27℅ to 52℅ Paying a salary is low admin, retains pension contributions and can be varied depending on savings income to retain the savings allowances (you can make a single annual payment salary at end of tax year when know exact P2P income).
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Liz
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Post by Liz on Oct 3, 2016 19:22:55 GMT
stevio Am I right that dividends from a Limited company don't disqualify me from benefiting from the £5000 Starting Rate Savings Band. So in effect I can earn; £17,000 from p2p and pax no Income Tax, despite earning Dividends from a Limited company, of say £5,000(or even £20k of dividends) There is now a 7.5℅ tax on dividends above 5k up to the basic rate tax band and 32.5℅ in higher tax band. Add this to the 20℅ CT, your effectively paying 27℅ to 52℅ Paying a salary is low admin, retains pension contributions and can be varied depending on savings income to retain the savings allowances (you can make a single annual payment salary at end of tax year when know exact P2P income). Thanks for the response, but you didn't answer what I was asking, simply. A) I earn £17K from p2p, no tax due (£11k+£5k+£1k) B) I earn £17K from p2p AND say £20K dividends. Do I get to keep the £5K SRSB?
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stevio
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Post by stevio on Oct 3, 2016 19:35:23 GMT
There is now a 7.5℅ tax on dividends above 5k up to the basic rate tax band and 32.5℅ in higher tax band. Add this to the 20℅ CT, your effectively paying 27℅ to 52℅ Paying a salary is low admin, retains pension contributions and can be varied depending on savings income to retain the savings allowances (you can make a single annual payment salary at end of tax year when know exact P2P income). Thanks for the response, but you didn't answer what I was asking, simply. A) I earn £17K from p2p, no tax due (£11k+£5k+£1k) B) I earn £17K from p2p AND say £20K dividends. Do I get to keep the £5K SRSB? It seems feasible, although I havent looked at higher dividends due to the higher tax rates. Suggest you experiment with figures at taxcalc
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Liz
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Post by Liz on Oct 3, 2016 20:01:29 GMT
Thanks for the response, but you didn't answer what I was asking, simply. A) I earn £17K from p2p, no tax due (£11k+£5k+£1k) B) I earn £17K from p2p AND say £20K dividends. Do I get to keep the £5K SRSB? It seems feasible, although I havent looked at higher dividends due to the higher tax rates. Suggest you experiment with figures at taxcalc OK thanks. Don't have taxcalc.
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fp
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Post by fp on Oct 3, 2016 20:28:36 GMT
stevio Am I right that dividends from a Limited company don't disqualify me from benefiting from the £5000 Starting Rate Savings Band. So in effect I can earn; £17,000 from p2p and pax no Income Tax, despite earning Dividends from a Limited company, of say £5,000(or even £20k of dividends) If its your limited company, its actually slightly more tax efficient to increase your salary to about 11k, you pay some NI but make savings on Corporation tax
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Post by richardb67 on Oct 4, 2016 9:14:48 GMT
stevio Am I right that dividends from a Limited company don't disqualify me from benefiting from the £5000 Starting Rate Savings Band. So in effect I can earn; £17,000 from p2p and pax no Income Tax, despite earning Dividends from a Limited company, of say £5,000(or even £20k of dividends) If its your limited company, its actually slightly more tax efficient to increase your salary to about 11k, you pay some NI but make savings on Corporation tax Although taking a £11k salary used to be the best way this is no longer the case. It's now marginally better to take a salary that matches the level that NI payments commence (ca £8k pa). This ensure that you qualify for the state pension whilst avoiding employers and employees NI which would be due on ca £3k if you took an £11k salary. My understanding is that the £5k starting savings rate is lost if you use dividends but I will be contacting my accountant about something else today so will ask them and update this when I get a response. Personally I would recommend anyone using a Ltd company uses a reputable accountant as it can be a bit of a minefield and they will be able to advise on the bigger picture and latest trends e.g. They might suggest you enrol on the flat rate VAT scheme which can boost your income, or that a Ltd co isn't worthwhile in your circumstances. I know several people who have got in trouble by inadvertently crossing the line e.g. using directors loans (as suggested by someone above !), claiming expenses that weren't solely for business, miscalculating their tax or not expecting payments on account and then having to suddenly find a stack of money, etc etc. FYI My accountant costs £100 pm + vat but take care of payroll, vat returns, monthly accounts, annual accounts and personal tax returns. R edit to clarify one point
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fp
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Post by fp on Oct 4, 2016 9:29:24 GMT
If its your limited company, its actually slightly more tax efficient to increase your salary to about 11k, you pay some NI but make savings on Corporation tax Although taking a £11k salary used to be the best way this is no longer the case. It's now marginally better to take a salary that matches the level that NI payments commence (ca £8k pa). This ensure that you qualify for the state pension whilst avoiding employers and employees NI which would be due on ca £3k if you took an £11k salary. My understanding is that the £5k starting savings rate is lost if you use dividends but I will be contacting my accountant about something else today so will ask them and update this when I get a response. Personally I would recommend anyone using a Ltd company uses a reputable accountant as it can be a bit of a minefield and they will be able to advise on the bigger picture and latest trends e.g. They might suggest you enrol on the flat rate VAT scheme which can boost your income, or that a Ltd co isn't worthwhile in your circumstances. I know several people who have got in trouble by inadvertently crossing the line e.g. using directors loans (as suggested by someone above !), claiming expenses that weren't solely for business, miscalculating their tax or not expecting payments on account and then having to suddenly find a stack of money, etc etc. FYI My accountant costs £100 pm + vat but take care of payroll, vat returns, monthly accounts, annual accounts and personal tax returns. R edit to clarify one point Things may have changed, but I changed my pay arrangements based on this information earlier this year: a) £8,060 salary Here are some of general factors to consider when setting your salary level (and that of your spouse, if applicable): If you are entitled to the full personal allowance, you will not pay any income tax at all if your salary level doesn’t cross this threshold. For 2016/17, the personal allowance is £11,000 (in 2015/16 it was £10,600). For the 2016/17 tax year, you only start paying Employees’ National Insurance Contributions when your annual salary reaches £8,060 (unchanged from previous year). For the 2016/17 tax year, your company only starts paying Employers’ National Insurance Contributions when your annual salary reaches £8,112 (unchanged). As a result, if your company is not claiming the Employment Allowance (see below), £8,060 remains a tax efficient salary to draw this year. Make sure you take into account any other income you have already received in the current tax year (for example, if you received a salary from a previous job or have rental income). There is no legal requirement to pay yourself the National Minimum Wage, unless you have a contract of employment with your own company which states otherwise (this is very unusual). b) £11,000 salary (claiming the Employment Allowance) If you are not caught by IR35, and you are not the sole director of your company without any other employees, you may benefit from paying yourself a higher salary than £8,060, and claiming the Employment Allowance (EA) as follows: The EA, which was first introduced in April 2014, will refund any Employers’ NICs your company pays, up to a maximum of £3,000. You will still have to pay Employees’ NICs on any salary over £8,060. So, if you pay yourself £11,000 during the current tax year, you will pay no income tax at all, the salary is deductible against your company’s Corporation Tax bill, and you’ll pay £352.80 in Employees’ NICs. The £398.54 Employers’ NICs will be refunded via the Employment Allowance (EA) scheme. However, you cannot claim the EA if you are the sole director of your company, and have no other employees. Your company will also save £588 in Corporation Tax if you decide to take a £11,000 salary instead of £8,060. So, overall, you are better off paying yourself a £11,000 salary during 2016/17, if you are eligible to claim the EA.
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fp
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Post by fp on Oct 4, 2016 9:31:01 GMT
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Post by richardb67 on Oct 4, 2016 13:52:37 GMT
b) £11,000 salary (claiming the Employment Allowance) If you are not caught by IR35, and you are not the sole director of your company without any other employees, you may benefit from paying yourself a higher salary than £8,060, and claiming the Employment Allowance (EA) as follows: The EA, which was first introduced in April 2014, will refund any Employers’ NICs your company pays, up to a maximum of £3,000. You will still have to pay Employees’ NICs on any salary over £8,060. So, if you pay yourself £11,000 during the current tax year, you will pay no income tax at all, the salary is deductible against your company’s Corporation Tax bill, and you’ll pay £352.80 in Employees’ NICs. The £398.54 Employers’ NICs will be refunded via the Employment Allowance (EA) scheme. However, you cannot claim the EA if you are the sole director of your company, and have no other employees. Your company will also save £588 in Corporation Tax if you decide to take a £11,000 salary instead of £8,060. So, overall, you are better off paying yourself a £11,000 salary during 2016/17, if you are eligible to claim the EA. Hi, unfortunately EA has been scrapped as people were taking advantage but creating 100's of small companies. Shame that the minority ruin it for the majority. R
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stevio
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Post by stevio on Oct 4, 2016 14:15:53 GMT
b) £11,000 salary (claiming the Employment Allowance) If you are not caught by IR35, and you are not the sole director of your company without any other employees, you may benefit from paying yourself a higher salary than £8,060, and claiming the Employment Allowance (EA) as follows: The EA, which was first introduced in April 2014, will refund any Employers’ NICs your company pays, up to a maximum of £3,000. You will still have to pay Employees’ NICs on any salary over £8,060. So, if you pay yourself £11,000 during the current tax year, you will pay no income tax at all, the salary is deductible against your company’s Corporation Tax bill, and you’ll pay £352.80 in Employees’ NICs. The £398.54 Employers’ NICs will be refunded via the Employment Allowance (EA) scheme. However, you cannot claim the EA if you are the sole director of your company, and have no other employees. Your company will also save £588 in Corporation Tax if you decide to take a £11,000 salary instead of £8,060. So, overall, you are better off paying yourself a £11,000 salary during 2016/17, if you are eligible to claim the EA. Hi, unfortunately EA has been scrapped as people were taking advantage but creating 100's of small companies. Shame that the minority ruin it for the majority. R No it hasn't, just been stopped for single director companies Then you just make your other half an employee
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fp
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Post by fp on Oct 4, 2016 14:19:56 GMT
b) £11,000 salary (claiming the Employment Allowance) If you are not caught by IR35, and you are not the sole director of your company without any other employees, you may benefit from paying yourself a higher salary than £8,060, and claiming the Employment Allowance (EA) as follows: The EA, which was first introduced in April 2014, will refund any Employers’ NICs your company pays, up to a maximum of £3,000. You will still have to pay Employees’ NICs on any salary over £8,060. So, if you pay yourself £11,000 during the current tax year, you will pay no income tax at all, the salary is deductible against your company’s Corporation Tax bill, and you’ll pay £352.80 in Employees’ NICs. The £398.54 Employers’ NICs will be refunded via the Employment Allowance (EA) scheme. However, you cannot claim the EA if you are the sole director of your company, and have no other employees.Your company will also save £588 in Corporation Tax if you decide to take a £11,000 salary instead of £8,060. So, overall, you are better off paying yourself a £11,000 salary during 2016/17, if you are eligible to claim the EA. Hi, unfortunately EA has been scrapped as people were taking advantage but creating 100's of small companies. Shame that the minority ruin it for the majority. R I'm pretty sure its only for these people.... I know I was eligible at the beginning of this tax year, two directors, but things do change.
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