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SRB and dividend 0% band

SRB and dividend 0% band

I'm still working on updating my spreadsheet, but cannot find the definitive answer on this.

Suppose someone has a salary of £8,060 in 2016/17, interest of £8,940, and dividend of £5,000. £5,000 falls to be taxed, but is it dividend, or interest? i.e does the dividend nil rate band eat into the SRB, or the other way round?

IGNORE, It must be interest. The damned NRB for dividends doesn't erode.

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24th Feb 2016 12:39

Yes

Interest comes before dividend, which is the top slice.

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24th Feb 2016 16:42

further pondering

I was thinking about the post April set up recently, and wondered if there any reason why a ltd co owned by a husband/wife cant lend money to their limited company, charge a market rate for an unsecured loan/overdraft and receive that tax free upto £5k each, with no 7.5% dividend tax and obtain a CT deduction for the company? 

There is clearly a knock on effect in terms of the interest eating up the basic rate band, but there would - if full funds distributed - be a corresponding fall in the dividend as profits would be lower after tax.  The only 'extra income' would be the extraction of the saved corp tax taxable at the highest marginal rate as a dividend. 

 

ie £100k profit in a husband/wife company

£80k after corp tax

£40k dividend each.

gross income £40k each, tax at 7.5% over £5k, ie £2,625 ignoring nil rate band/salaries.

Net income, £74,750

 

Charge interest of £10k on a loan to the company.  Profit falls to £90k.  £72k after tax. 

£36 dividend each

Gross income £36K divi + £5 interest = £41k gross.  Tax on dividends, £31k @ 7.5% £2,325. No tax on interest.

Net Income £36+5k - £2,325 * 2 = £77,350

So net incomes are plus £2,600, (being £2,000 of corporation tax plus dividend taxes of £600)

 

Clearly you would need a big loan to get a result of this size, but is there any reason we cant do this ongoing?

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24th Feb 2016 16:43

Erm, let me think...

ireallyshouldknowthisbut wrote:

Clearly you would need a bit loan to get a result of this size, but is there any reason we cant do this ongoing?

You mean like the company not getting corporation tax relief for the interest paid under the loan relationship unallowable purpose rules, for example?

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24th Feb 2016 17:15

.

Portia Nina Levin wrote:

ireallyshouldknowthisbut wrote:

Clearly you would need a bit loan to get a result of this size, but is there any reason we cant do this ongoing?

You mean like the company not getting corporation tax relief for the interest paid under the loan relationship unallowable purpose rules, for example?

Exactly that sort of a thing Portia.

Rules that I cant get my pretty little head around on account of having never read them, and if it did having little chance of understanding them.

But I am reading them right now.

 

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24th Feb 2016 16:42

No reason

None, other than interest needing to be charged at market rates, therefore a loan of approx. £200K being required for your stated plan.

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24th Feb 2016 17:07

Am I missing something here?

Does SRB used here stand for 'Starting Rate Band'? If so, I thought that it only applied to savings income if the total of taxable savings and non-savings income did not exceed the SRB plus personal allowances. If so, then the maximum income in order to take advantage of SRB in 2016/17 could only ever be £17,000.

As I say, am I missing something here?

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