Dividends are one of the most appealing aspects of having your own business. They are payments made from a company's profits that are subject to different tax laws than income given as a salary.
What are the advantages of dividends?
The figures in this section have been rounded up for clarity and to demonstrate how the system works. All figures given should be regarded as estimates.
You might be wondering why, in the above case, you wouldn't immediately take a higher salary from the company rather than leaving the money as profit till the end of the year. The explanation is primarily due to the tax bill.
Conclusions
So, in the appropriate circumstances, a significant potential deduction from your profits of £27,000 is lowered to £17,000 using dividends, and then further lowered to £7,000 in the appropriate circumstances. When dealing with significant sums of money, percentages, wages, tax rates, and so on, it might appear very confusing. As seen by the above example, it is well worth your time to learn as much as you can about dividends. A professional accountant will take the time to help you understand your company's data and will be there to advise you when you wish to explore your choices.
If you’re not yet an Accotax (Accountants in London) client, we can make paying yourself tax-efficiently easy, with all your HMRC payroll and dividend forms taken care of. Even better, you’ll get all the support and advice you need, plus all your company tax filing taken care of. We can even prepare and file your annual Self Assessment tax return. Find out more about our great-value Limited company accountants Packages.