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How will dividends from my business affect my tax?

I take no salary from the business but it is turning a profit

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My wife and I are both  directors in our recently formed salon business. I have my main job, and I take no salary from the salon business. We look like we going to make a profit this year, If my wife and I take dividends from the business, how will this effect my main job tax, and what do forms do I need to fill out etc. ( we havent made a profit to date so it hasnt been an issue) TIA

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By David Ex
04th Aug 2021 11:51

You should have taken professional advice before setting up a company. Did you consider other business structures? There are advantages and disadvantages which are only apparent when you apply the alternatives to a full consideration of all your, and your family’s, financial and tax affairs and aspirations.

Your question trivialises what isn’t trivial and also shows scant respect for the expertise of skilled and experienced accountants on this site.

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By JTATK
04th Aug 2021 12:18

We did, we looked at being sole traders, but the franchise we took over advised that our turnover would be too high. I mean no disrespect, apologies if I have trivialised or offended, I have an accountant that will advise when the time comes I'm sure, but I was interested in other accounting professional's opinions and advice.

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Replying to JTATK:
RLI
By lionofludesch
04th Aug 2021 12:29

JTATK wrote:

We did, we looked at being sole traders, but the franchise we took over advised that our turnover would be too high.

There's no turnover limit on an unincorporated business.

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Replying to JTATK:
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By Leywood
04th Aug 2021 12:37

If you want 'other accounting professional's opinions and advice' you need to pay for it.

Its worth more than a few free haircuts

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Replying to Leywood:
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By JTATK
04th Aug 2021 12:54

Wow you are a friendly lot, I don't expect anything for free. Thanks for all of your invaluable advice!

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Replying to JTATK:
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By I'msorryIhaven'taclue
04th Aug 2021 13:08

There are so many variables, but broadly (and if you want to keep costs to a minimum) then the information you need to present to your accountant is:
Your salary, both annual and year to date; your wife's salary, both annual and YTD (and hopefully she's paying herself upwards of [say] £700 per month - if not, your accountant should know how best to rectify the matter); your shareholdings; directorship(s) of your company; and any other expected income for either of you. Include furlough pay, grants, social security payments or benefits etc.

Then you'll need some figures for your salon's profits to date, and perhaps a forecast of what you expect it to make going forward (taking into account both open for business or lock-down scenarios).

Your accountant should be able to help you make a value call.

Good hunting!

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Replying to JTATK:
Stepurhan
By stepurhan
05th Aug 2021 09:21

JTATK wrote:

Wow you are a friendly lot, I don't expect anything for free.

Yet here you are, seeking advice on a free forum.
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Scooby
By gainsborough
04th Aug 2021 12:20

Don't wait until then. Seek advice from your current accountant now to ensure that the relevant tax planning can be done in good time (and so you don't miss any deadlines).

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By JLPrice
04th Aug 2021 13:05

It will all depend on what level of income you have from your PAYE job. Dividends are taxed at 7.5%, 32.5% or 38.1% depending on your income bracket. You also have the dividend tax free allowance (for now).

You will need to declare this income on a personal tax return, and if not already registered, you will need to register for the self assessment system.

You should speak to your accountant, and they will be able to give you an estimated tax liability depending on your personal circumstances. They also may be able to offer advice on ways to save tax.

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Replying to JLPrice:
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By nick farrow
04th Aug 2021 14:54

I think there may also be an effective rate of 55% on dividends if the the last £20k of dividend increases total income to £120,000

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By paulhammett
04th Aug 2021 13:58

Just a tip for future reference. If you are asking for help and advice, it’s a good idea to include ‘please’ in your question.

Good luck with the business venture.

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Replying to paulhammett:
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By I'msorryIhaven'taclue
04th Aug 2021 14:07

He did say Ta In Advance.

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Replying to I'msorryIhaven'taclue:
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By paulhammett
04th Aug 2021 15:58

So that’s what TIA means. I must be getting old!

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By AdamMurphy
04th Aug 2021 14:13

You have an accountant but rather than pay for his/her time to give advice specifically for your circumstances, which he/she knows, you want free advice from someone who doesn't know you at all.

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By Tom Cross
04th Aug 2021 16:11

For all you know this site could be a front for lonely and lost weirdo's.

I truly mean no harm but, I recently spent just over an hour, with a potential client and his mother, proferring advice as regards the formation of a limited company. At each stage, I gathered that; my advice would largely be ignored and, they were quite determined to form the limited company on their own and organise Paye arrangements, as they saw fit. Google would clearly be their friend and I am delighted that, since the initial discussion, I have heard nothing further.

Quite frankly, accountants and tax adviser's have to demonstrate greater expertise than they ever had to before and, these days, this site is no place to try and obtain the type of advice, which you are seeking. Indeed Aweb would be well advised to place a warning, on this site to extinguish the possibility of future claims against them (clearly we live in a much difference environment than the one I was brought up in).

Good advice is an "insurance" policy and, from the brief summary, which you have provided, your finances are sufficiently complicated already to warrant payment of appropriate professional fees.

If my reply is not in a tone, which you were hoping to hear, for that I won't apologise.

This isn't a site to be "friendly", it's simply a group of professional people exchanging their opinions. Now, grow some.

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Replying to Tom Cross:
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By I'msorryIhaven'taclue
04th Aug 2021 16:21

Tom Cross wrote:

For all you know this site could be a front for lonely and lost weirdos.

That's us alright!

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Replying to I'msorryIhaven'taclue:
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By paulhammett
04th Aug 2021 18:54

Yep, that just about sums us up nicely!

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By DKB-Sheffield
04th Aug 2021 16:30

Hi

I'm afraid you may have misunderstood what this site is about. The site us for accountants and related professionals. It is not a free advice line.

The questions you have asked are not "simple" to answer. Any response will need you to provide full details of your income and that of your company (and wife). The one simple answer is "yes this will probably have an impact on your tax position".

Please also note that, even if someone were to provide you with an answer on here (based on your original question), the advice may be right or may be wrong. Either way you would have no "come back", would not be protected by PII, and would likely miss some of the salient points. It's easy to read what you want to "hear" on here, yet miss the bits you don't like! For example, were I to say "you won't pay tax on dividends unless you receive over £2K, and then only 7.5%" I would have missed explaining that a higher rate/ additional rate taxpayer would pay at a higher rate AND that the £2K would be reduced or lost if you receive dividends from elsewhere.

You have an accountant so they are the best (and only) place you should go for personal tax advice. If you don't believe their advice is correct, approach another accountant and pay them to advise you.

Free, generic advice is dangerous and can be easily misconstrued. Besides, if you get the wrong advice on here, or misread what is provided, how will you explain this to HMRC? "Some guy on AccountingWEB called 'GreatFreeTaxTips4U' told me it was fine"? Turning the tables, if I asked your wife on a forum whether I should bleach my hair, would she answer? If she did, could I sue her for the adverse reaction to peroxide (I forgot to mention on the forum that I had a severe allergy)?

Finally, I do have a niggling concern from your post whereby you took professional advice on business structure... and then acted on the inaccurate (note, I do not say "wrong" as I am unable to form that opinion) advice of the franchisor! This is inaccurate because, as has been stated... income is not limited (in theory a Sole Trader can turnover £Ms but, likewise, a Ltd Co can have a turnover of £1). If the option to incorporate was based purely on turnover, it was the wrong basis for your decision. Liability, tax efficiency and simplicity should have been some of your key aims.

Good luck!

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By Tax Dragon
04th Aug 2021 16:51

JTATK wrote:

If my wife and I take dividends from the business, how will this effect my main job tax

It won't.

JTATK wrote:

What do forms do I need to fill out etc.

If the dividends give rise to tax liabilities, and you are not already within Self Assessment, register with HMRC and submit SA100 tax returns.

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Replying to Tax Dragon:
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By DKB-Sheffield
04th Aug 2021 17:11

Tax Dragon wrote:

JTATK wrote:

If my wife and I take dividends from the business, how will this effect my main job tax

It won't.

Unless, perhaps, the OP opts to have taxes on dividends paid through his tax code?

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Replying to DKB-Sheffield:
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By Tax Dragon
04th Aug 2021 17:33

Perhaps. But, inspired by Jason, I am using HMRC as a role model - not giving tax/planning advice, simply answering the questions asked based on the words used.

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Replying to Tax Dragon:
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By DKB-Sheffield
04th Aug 2021 18:00

Good call!!!

It does sort of prove the point of my previous comments. Any well-read professional knows what you mean. To the layman, seeking free expert advice....... that's another matter!

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Replying to Tax Dragon:
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By More unearned luck
04th Aug 2021 18:42

In that case how do you know that the OP and his wife operate via a company?

He used the word 'business'. He later said that he had been advised not to be sole traders, which doesn't rule out a partnership or LLP.

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Replying to More unearned luck:
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By paulhammett
04th Aug 2021 18:53

Well, the OP did make reference to dividends.

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Replying to paulhammett:
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By Tax Dragon
04th Aug 2021 18:57

And my answer was based on the words used.

.oO Seriously, how hard is this?!

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Replying to Tax Dragon:
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By Tax Dragon
04th Aug 2021 19:03

For completeness, if dividends means drawings, my answers are:

JTATK wrote:

If my wife and I take drawings from the business, how will this effect my main job tax

It won't.

JTATK wrote:

What do forms do I need to fill out etc.

If you are not already within Self Assessment, register with HMRC and submit SA100 tax returns.

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Replying to Tax Dragon:
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By DKB-Sheffield
04th Aug 2021 20:28

If the OP is going to take drawings from a limited company, dividends from a partnership and get ideas from here before asking his accountant for help, there must be a reason. It is possible the OP does not, in fact, have an accountant (or has disengaged one) and is looking to "go it alone". Afterall, as we all know, tax accounting is simples -FACT???!!!

To OP: In my opinion, there are 3 options...

1. Meet with/ phone/ Zoom/ email/ post a letter/ send a carrier pigeon to (delete as appropriate) your accountant (or engage an accountant if you don't already have one). Share all of your information/ concerns and let them review the facts. Let them provide you with personal/ tailored advice. Pay them a fee. Decide whether you wish to act on, or take their advice.

2. Spend the next 10 years training to be a tax advisor so that you know all of the answers to your questions... and the ones you haven't yet considered or been faced with. Then act on your own knowledge.

3. Or, by far the most favoured option of the masses. Visit your local hostelry. Buy one of the locals a drink. Ask their advice. They will tell you how to get endless tax refunds, reduce your VAT bill to £Nil and obtain grants and benefits. It must be good advice cos you wouldn't believe how many people swear by it.

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Replying to DKB-Sheffield:
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By I'msorryIhaven'taclue
05th Aug 2021 09:35

4. Put a sign in the window offering Half-Price Haircuts for Accountants and engage them in conversation about your tax affairs when they're held captive in your chair.

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By murphy1
05th Aug 2021 21:54

Pretty incredulous, but exactly what we are experiencing every single day!

Hairdressers, motor mechanics, nail technicians etc etc put their prices up every few months and everyone accepts this and pays.

Yet, they expect the so called ‘professionals’ to work for free.

Fed up taking calls...’just a quick easy question ....’££[email protected]&kk’...actually not’ and when we say yes we can help, but we will need to charge, ‘no, it fine!’

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