R Stride & Co. Information Sheet 3 Directors dividends 2014/2015

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1 Due to the change in tax allowances and tax bands care must be taken during 2014/2015 to ensure that directors pay and dividends do not fall outside the bands. Personal Tax allowances The current personal allowance for 2014/2015 is 10,000. Salary The optimum salaries for directors (assuming no other personal income e.g. pensions) will be 10,000. ( gross per month) This maximises the allowance but also puts the director just into the national insurance levels so that contributions are paid, therefore state pensions and other benefits (sickness and maternity) can be claimed. We shall be preparing pay slips for you and complying with all employee legislation on your behalf, advising on filing deadlines, submission of paperwork and paying of paye etc Please ensure that salaries are paid independently of any other income or withdrawals from the business e.g. director loans or dividends PAYE Payments As the rules regarding payroll constantly change it is now important that monthly payments in respect of the deductions from your salary (and that of any other employees) are made well before the 19 th of the month following the salary. e.g. March payroll. Pay the paye deductions before 19 th April There is now an increasing penalty system for not paying the deductions on time. This increases from 1% for the first late payment up to a monthly maximum of 14%

2 Net Salary and National Insurance Please note that directors will pay all of their national insurance not monthly but annually. National insurance will start to be deducted during the months of January to March Budget on 100 per month. Between April 2014 and December 2014 no deductions will be made, and therefore your net salary will be Benefit of paying a salary As the salary is tax free to you there are no tax implications for your own tax return. However as the company is paying a salary and this is an allowable business expense it will reduce your profit by 10,000 and therefore reduce the tax bill by 20% ( 2,000 off your corporation tax charge) Dividends The higher rate (40%) tax band has reduced for 2014/2015 from 32,010 to 31,865 and therefore the maximum dividends that can be taken during 2013/2014 is 28,678 Salary 10,000 Net Dividend 28,678 / 90 x ,865 Total Income 41,865 Less personal Tax Allowance 10,000 Taxable 31,865 Tax on 31,865 (dividend rate after tax credit) Nil Please ensure that you do not take more than 28,678 in dividends before 6 th April This equates to 7,169 per quarter. Excess dividends Any dividends taken in excess of 28,678 personal tax will be charged at 22.5%

3 Frequency of Dividends Due to the nature of dividends and their tax advantage, care must be made to ensure that dividends are treated separately from any other remuneration. Pay separately from salary payments Ensure that R Stride & Co prepare a dividend voucher and directors meeting notes for all dividends paid Our advice is to take dividends no more than a quarterly basis i.e. every three months, as more often than this could result in the Inland Revenue trying to prove that the payout is salary, and therefore tax and national insurance of up to 74.8% could be demanded, plus penalties. If you have problems with cash flow paying dividends on a quarterly basis, please contact us and we shall work with you to achieve this in the long term. Our advice is to take a quarterly dividend, but pay this into a private bank deposit account, and then monthly transfer 1/3 of the dividend to your current account. That way you don t spend all your quarters dividend in the first month! Can a dividend be payable? As the dividend is made from profits, there must be profit in the business. You can not take a dividend if profit is not available. If you are unsure please contact R Stride & Co for further advice. Before a dividend is issued we advise that a simple calculation is made (see calculation sheet below) to ensure that there is sufficient profit to pay a dividend. R Stride & Co LLP The Old Coach House Rear of Eastville Terrace Ripon Road Tel Harrogate robin@rstride.co.uk HG1 3HJ Web

4 Company Name CALCULATION SHEET FOR DIVIDENDS Bank balance 1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter Add customers balances Add other amounts owning to company Less amounts owing to suppliers Less amounts owning in paye and vat Less other company creditors Total worth of the company Provisional corporation tax on above at 20% Funds available for dividend Dividends already issued for 2014/2015 Funds now available for dividend

5 DIVIDEND RECORD FOR 2014/2015 Personal Name Tax Year 2014/ th April 2014 to 5 th April 2015 Payment Number 1 st Quarter 2 nd Quarter 3 rd Quarter 4 th Quarter Date Amount Cumulative Amount Total Dividend Taken During 2014/2015 In reality there should only be 4 entries above, one for each quarter. However spaces have been provided if more payments have been made for some reason. These I assume we will have discussed the reason. Please retain this with a copy of dividend vouchers issued by R Stride & Co and forward to R Stride & Co shortly after 5 th April 2015 so that your personal tax return can be prepared.