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Ltd Company Director and full time job

How much tax i need to pay?

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I am a one man Ltd company director and i also have a full time job. I do have an accountant but i am here to take second opinion.

I pay 40% tax on my full time job.

I have been running a ltd company sice last year Sept. I use my company for a consultancy work and i have not taken any salary out from my company.

I have the following tax related questions;

1) If i do take any salary from my company then would i be paying 40% tax?

2) If i take 2k dividend then how much tax i need to pay? is it 40%

Thanks

 

 

Replies (49)

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RLI
By lionofludesch
18th Sep 2021 23:19

What does your accountant say?

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By Hugo Fair
18th Sep 2021 23:33

All your salaried earnings (from multiple employments) can only use the one personal allowance that you as an individual possess, when determining tax due. This also applies to other earnings you may have (such as from bank interest) - and, in reverse, to any taxable benefits of which you may be in receipt. Whereas NI (employer and employee contribution) deductions are per employment.
It's not that complicated, but if you don't know all this then you need an accountant.

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Replying to Hugo Fair:
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By Hugo Fair
18th Sep 2021 23:40

I've just noticed you were in the same situation 6 months ago (with combined earnings in excess of £110k pa) ... and said "I do have an accountant but not sure if he is any good"!
If he wasn't, you've had plenty of time to find one who is ... and really should do so without delay.
If you haven't sorted out the scenario in your previous post, then a tax rate of 40% will likely be the least of your problems.

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By AdamMurphy
18th Sep 2021 23:36

“I do have an accountant but i am here to take second opinion”

This is where the “sure Jan” meme needs to be used

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By petersaxton
18th Sep 2021 23:38

£2k of dividends isn't taxed
Your earnings would be taxed at 40% or 45% depending on how much you earn.
Plus there is NICs.

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Replying to petersaxton:
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By sdyson31
19th Sep 2021 00:02

Can I still claim the 2k in dividend from the income generated b/w sept 20 and May 20? And would this count in previous tax year ?

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Replying to sdyson31:
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By Wanderer
19th Sep 2021 01:35

Your company didn't exist in May 20.

And if you meant May 21 the answer is no, it's not when the company generated income that's relevant.

Furthermore you previously stated that your company work is within IR35, so this will have an affect of the availability of dividends.

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Replying to Wanderer:
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By sdyson31
19th Sep 2021 06:51

Yes I meant Sept 20 - May 21.

The work I do it’s not inside IR35. My client has confirmed this by issuing the SDS.

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Replying to petersaxton:
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By Not Anonymous
19th Sep 2021 19:41

petersaxton wrote:

£2k of dividends isn't taxed
Your earnings would be taxed at 40% or 45% depending on how much you earn.
Plus there is NICs.

£2k of (taxable) dividend income is taxed and can increase the overall liability even if the dividends themselves are taxed at 0%.

For example,
Reduction in Personal Allowance
Additional High Income Child Benefit Charge
Reduction of Married Couple's Allowance
Loss of Marriage Allowance

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Replying to Not Anonymous:
By petersaxton
19th Sep 2021 22:28

The dividends themselves are not taxed even if they affect other taxable income.
I think he knows about the reduction in personal allowances and the others may not be relevant. This is why an accountant who knows the taxpayers circumstances is needed.

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By Matrix
19th Sep 2021 07:05

£2k dividends would be covered by your dividend allowance, if unused. I would get advice on the optimal way to extract the rest of the money.

You really need someone to have all the info to advise as there could be tax consequences such as loss of child benefit, loss of personal allowance etc.

If you don’t need the money then you could, for example, leave it in the company or pay it into a pension.

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Replying to Matrix:
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By sdyson31
19th Sep 2021 07:32

I don't have any personal allowance because of the higher earning from the full time job. Also, don't claim child benefits anymore, stopped them ages ago.

I think i will have to leave the money in the business or invest it some where.

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Replying to sdyson31:
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By AdamMurphy
19th Sep 2021 07:45

sdyson31 wrote:

I don't have any personal allowance because of the higher earning from the full time job. Also, don't claim child benefits anymore, stopped them ages ago.

I think i will have to leave the money in the business or invest it some where.

If you earn enough not to have a personal allowance, you can afford an accountant instead of pretending you have one and coming on here for free advice.

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Replying to sdyson31:
RLI
By lionofludesch
19th Sep 2021 07:54

sdyson31 wrote:

I don't have any personal allowance because of the higher earning from the full time job.

Not quite true. It's your income from all sources that matters. Not each individual job.

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Replying to sdyson31:
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By DKB-Sheffield
19th Sep 2021 14:01

Hi

Late to this thread!

I don't think anyone has suggested you need to leave the funds in the company. This would seem nonsensical if the ultimate aim is to draw the money out in the future as you may lose whatever small reliefs that are available.

Nor, do I think anyone has suggested that the company investing the money will be the most tax-efficient option. You can't usually invest the company's money in a personal investment (excepting for a pension etc.) without facing the 'extraction' question.

Unfortunately, to give 'advice' or a 'second opinion' we would need so much more information than has been provided. Such an assessment would need details of ALL income, details of any 'other dividends', would need to cover the value of funds you are looking to extract etc. This is not within the scope of this forum!

The answers thus far are good answers and provide good information that you can research and apply to you own case. They do not, however constitute advice, or a second opinion! For that, you will need to approach your accountant, or another accountant if you don't feel the current one gives good advice!

Incidentally, on the 'investment' suggestion, don't expect your accountant to advise on this. Many are not regulated to advise on investments!

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Replying to sdyson31:
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By bernard michael
20th Sep 2021 10:01

sdyson31 wrote:

I don't have any personal allowance because of the higher earning from the full time job. Also, don't claim child benefits anymore, stopped them ages ago.

I think i will have to leave the money in the business or invest it some where.


Were you wise to just stop child benefits when considering the effect on NIC contributions ??
Ask your maligned accountant
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Replying to bernard michael:
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By Matrix
20th Sep 2021 11:58

I don’t get your point here and you have made a lot of assumptions. If one of those was that the OP has a non working spouse looking after children under the age of 12, then the NI credits are triggered by the application for child benefit, not the ongoing receipt of the benefit.

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Replying to Matrix:
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By lionofludesch
20th Sep 2021 12:02

Matrix wrote:

I don’t get your point here and you have made a lot of assumptions. If one of those was that the OP has a non working spouse looking after children under the age of 12, then the NI credits are triggered by the application for child benefit, not the ongoing receipt of the benefit.

Agree.

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Replying to bernard michael:
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By Paul Crowley
20th Sep 2021 13:34

The point is relevant for claimant's pension contributions.
It can be repaired, but people often do not fix it
Far better to claim and repay
More relevant is that income can go down as well as up

A bit like SEISS
If claimed it can be repaid
But if not claimed it is gone forever

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By Tax Dragon
19th Sep 2021 07:34

Peter is right and wrong.

Do you mind answering Lion's initial response? It'll help focus the subsequent discussion.

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Replying to Tax Dragon:
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By sdyson31
19th Sep 2021 08:01

My accountant is not great in giving advice. He mainly sorts out my VAT and will be doing cooperate tax when it’s due. He charges me £75 a month when I have work otherwise £25 a month.

He has given me different advices and the reason I am here is to double check if he is right.

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Replying to sdyson31:
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By Leywood
19th Sep 2021 09:19

You want a second opinion, so pay for one.

In fact, get a better Accountant, yours sounds pants if he really isn’t great at giving advice,as you state.

This forum’s rules state you cannot take advice from here.

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Replying to Leywood:
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By Tax Dragon
19th Sep 2021 10:19

Leywood wrote:

This forum’s rules state you cannot take advice from here.

Common sense says it's stupid to.

(Excuse the adjective.)

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Replying to Tax Dragon:
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By lionofludesch
19th Sep 2021 10:31

Tax Dragon wrote:

(Excuse the adjective.)

Common ?

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Replying to lionofludesch:
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By Tax Dragon
19th Sep 2021 11:16

I always write it as "common sense" and autocorrect always changes it to "common sense".

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Replying to Tax Dragon:
RLI
By lionofludesch
19th Sep 2021 11:25

Tax Dragon wrote:

I always write it as "common sense" and autocorrect always changes it to "common sense".

Switch autocorrect off.

Common sense, really.

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Replying to lionofludesch:
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By AdamMurphy
19th Sep 2021 11:29

Ducking obvious to most

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Replying to sdyson31:
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By DKB-Sheffield
19th Sep 2021 14:31

I'm afraid, further to my first comment, you aren't going to find out if your accountant is correct unless you supply ALL of the information you accountant has on file that has led to their advice. Furthermore, I'm not certain you've actually told us what the advice was that you have received.

As others have said, if you are looking for a second opinion, this will only be worthwhile if is based on the full facts. That detail cannot be provided in here, nor should it!

Before seeking a second opinion, you need to ask 'why' you are seeking it. Examples are:
- You think/ know your accountant is wrong and think/ know where they are wrong (i.e. something you've read it, MTDP told you, etc ) - in which case, challenge your accountant and ask for a detailed explanation
- You have been told your accountant is wrong (either by HMRC, another accountant, another professional, etc.) - again, I'd challenge the accountant first
- You don't like what your accountant has told you! Before jumping ship and paying for a second opinion, do consider that they are (maybe) right. We (as accountants) are often the bearers of bad news. Our clients don't like to hear that their 'zero tax' business plans are actually going to have a significant cost. Many may not believe us. However, paying a specialist for a second opinion won't change the facts!

Finally, and whilst I will not be drawn into siding with, or against, your current accountant, you have specifically stated they are contracted to provide VAT and CT services (and I assume annual accounting, potentially even bookkeeping software - hence the minimum monthly fee). This would, to my mind, preclude PAYE or Personal Tax advice. This may explain why your accountant is not providing detailed personal tax advice. Furthermore, with a fee-take of between £300 and £900 per annum, it would suggest there would be little scope for detailed advice - at all. Perhaps a review of the services your accountant provides would be a good starting point!?

Thanks (3)
Replying to sdyson31:
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By bernard michael
20th Sep 2021 10:02

sdyson31 wrote:

My accountant is not great in giving advice. He mainly sorts out my VAT and will be doing cooperate tax when it’s due. He charges me £75 a month when I have work otherwise £25 a month.

He has given me different advices and the reason I am here is to double check if he is right.


How much does he charge you for doing your tax return??
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Replying to Tax Dragon:
By petersaxton
19th Sep 2021 11:42

"Peter is right and wrong."

I like to cover all bases.

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Replying to Tax Dragon:
By petersaxton
19th Sep 2021 11:59

Tax Dragon is right and wrong.

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Replying to petersaxton:
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By Tax Dragon
20th Sep 2021 09:14

petersaxton wrote:

Tax Dragon is right and wrong.

Apologies, I missed this compliment until today. Thank you.

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By Paul Crowley
19th Sep 2021 12:54

Always a good idea to plan
Part of the plan should be remuneration and the exit route
Dividends need to be declared
The tax on dividends at higher rate is currently 32.5%, after the company has paid its Corporation tax
My guess is that the company has not yet declared any dividends

If you do not get advice from your current accountant then time to consider if that accountant is best for you

So far every responder has given good advice

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Replying to Paul Crowley:
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By sdyson31
19th Sep 2021 20:07

Thanks Paul.

No I have not claimed anything. With regards to paying tax on dividend, let’s say I earn 90k from full time job and claim 10k in dividend then would my earning be 100k? And don’t I need to pay 40% tax?

Also, does it matter when I claim the dividend? Is company year end different to financial year which starts on 5th April?

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Replying to sdyson31:
RLI
By lionofludesch
19th Sep 2021 22:59

sdyson31 wrote:

Thanks Paul.

No I have not claimed anything. With regards to paying tax on dividend, let’s say I earn 90k from full time job and claim 10k in dividend then would my earning be 100k? And don’t I need to pay 40% tax?

Also, does it matter when I claim the dividend? Is company year end different to financial year which starts on 5th April?

Couple of misconceptions here - you don't "claim" a dividend. The company decides to declare one. That might amount to the same fella making the decision but it is a company decision.

Your company can choose any year end. It might be 5th April but it probably isn't. It's whatever it says on the accounts.

The £100000 threshold is where you start losing personal allowance. It's where a potential 60% rate starts though the exact marginal rate will depend on the mix between dividend and other income.

As mentioned above, currently, your dividend on the income you state would be taxed at £2000 @ zero and the balance at 32.5%.

Given that the Government intends to increase dividend tax from 6th April 2022, a dividend before then might be advisable. But there may be other factors which you have chosen not to disclose which may be germane. There is no substitute for proper tailored advice. Ignore this at your peril.

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Replying to lionofludesch:
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By Tax Dragon
19th Sep 2021 23:10

'Peril' is a bit strong.

But Aweb is not an accountant. (As some numpty in here keeps boring us all by repeating.)

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Replying to Tax Dragon:
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By DKB-Sheffield
19th Sep 2021 23:55

Hi Tax Dragon

Sorry, I think I need to hold my hands up to being that 'numpty'. Been many years since I was called that! Certainly beats some other names I've been called (that can't be repeated on here)!

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Replying to DKB-Sheffield:
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By Tax Dragon
20th Sep 2021 04:33

I wouldn't dream of calling you a numpty.

But I'm glad if you have also adopted the slogan that Aweb is not an accountant. (It's also not a lawyer. It's not impossible - we don't know, OP hasn't provided much information - that appointing a lawyer would be a good move for the OP.)

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Replying to DKB-Sheffield:
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By alialdabawi
20th Sep 2021 11:00

Thank you, DKB, for taking the hit, but I suspect the Dragon's fire was aimed at me for my repeated posts calling those pushing MTD a bunch of numpties.

Each time a reference to the non-simple nature of tax comes up, I have used the post - will stop now.

I may start calling you DKB-shield!

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Replying to alialdabawi:
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By Tax Dragon
20th Sep 2021 12:32

I suppose it is possible - likely even - that there is more than one numpty in here, and it's heart-warming to see people volunteering for the role - indeed I think all volunteers should be accepted, as it's an important job.

That aside, the person that, as far as I am aware, has used the phrase "Aweb is not an accountant" (or slight adaptations thereof, especially as part of a couplet: "what you need is an accountant, Aweb is not an accountant", again with modification from time to time) goes by the username of Tax Dragon.

So, for the avoidance of doubt (and avoidance of offence)...

Tax Dragon wrote:

Aweb is not an accountant. (As some numpty in here keeps boring us all by repeating.)

I was indeed volunteering myself for the aforesaid role.

Maybe you, DKB, me and any other numpty volunteers should form an Aweb subcommittee?

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Replying to Tax Dragon:
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By alialdabawi
20th Sep 2021 13:00

I prefer the evasion of doubt, but let's not venture down that conversational or behavioural path...

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Replying to alialdabawi:
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By Tax Dragon
20th Sep 2021 13:11

Yeah, one for the committee, defo. (We can feed back to the rest of the gang(/world) in due course.)

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Replying to Tax Dragon:
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By Hugo Fair
20th Sep 2021 13:24

Somewhere ... in a vast cavern near the top of the world's tallest mountain ... a sound can be heard. Initially a sibilant whisper, it slowly grows and swells with a rhythm that is reinforced by the slow stamp of hundreds and then thousands of feet. There is a distinctive duo-syllabic intonation to the sound that, as the volume increases, becomes clearer as a pair of such noises ...
"Numpty", "Numpty", "I am Numpty", "I am .."
Spartacus leaves the realm, looking disappointed.

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Replying to Hugo Fair:
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By Tax Dragon
20th Sep 2021 14:11

You're right - creative writing would be dull, dull, dull, so desperately dull and tedious and stuffy and boring and des-per-ate-ly DULL without adjectives.

A bit like lion-taming, I imagine.

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Replying to sdyson31:
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By DKB-Sheffield
19th Sep 2021 23:45

Hi

Firstly, I think you seem to be ignoring the important part of most responses. You need an advisor who can review this, and all related matters. You will have to pay for that advice in the same way as your customers and your employer pays you. You may need an alternative accountant, or you may need to pay your current accountant extra to provide personal tax advice. £100K is not an insignificant income, is not one I'd risk gambling on advice from a forum, and it would certainly suggest you are not at risk of poverty if a 'nasty, greedy' accountant charges you for advice.

In relation to your questions...

Dividends are not claimed, they are declared. There are rules around if, or when, dividends can be paid. They can only be paid from distributable reserves (including 'after Corporation Tax'). They are in the form of interim or final dividends (each with different requirements). The date of declaration is not restricted to the AP end, nor is it restricted to the Tax Year End. Correct dividend paperwork is required... and that is just for starters (there are other things to consider).

If you already know all of the above, we can consider dividend tax. In addition to CT which is taxed on company profits, dividends are currently (2021/22) taxed at 0% (first £2K) and then; 7.5%, 32.5% & 38.1% dependent on your total income. Dividends are grossed up so, if you have £1.5K in dividends from Amazon, you will not also get £2K 'tax free' from your company (only £500 is remaining). In addition to employment income, there maybe numerous other income sources, or other factors affecting your taxable income. You may also have a non-standard tax code (say if you receive BIK or have prior year tax underpayments). Only a full understanding of your income will allow for an exact calculation.

Moving on to your question about tax liability, here is a (purely) illustrative example:
Assuming someone has a salaried income (no BIK) of £90K, and assuming there is no other income/ dividends, and assuming that person has a full "standard" tax code (no marriage allowance), the relevant taxes would be as follows:
- Profit in company £12,346
- CT payable by company £2,346
- Profits available for distribution £10K
- Dividend declared £10K
- Tax on £2K @ 0% = £0
- Tax on £8K at 32.5% £2,600
- Dividend income after tax £7,400

HOWEVER, as you have already stated, you have no personal allowance due to your salaried income. As personal allowance withdrawal starts at £100K, it would follow that your actual salary is over £125K. If it is over £140K, additional rate tax may kick in!

Finally, I repeat my earlier comments, and those of others. TAKE PROFESSIONAL ADVICE! What you are asking here requires a knowledge of CA2006, Corporation Tax Legislation AND Personal Tax Legislation. If you don't have that knowledge, PAY someone who does in the same way that people pay you for consultancy! Don't try and DIY! You stand to lose more in tax than the fee!

**Disclaimer***
Everything stated in the above is illustrative. I have not reviewed your records, or information. You are not a client. We do not have a formal engagement. You are not covered by my PII. I have not carried out AML checks. It may be right. In your circumstances, it may be very wrong. Any use of the information provided, or the application of the said information to your circumstances, is entirely at your own risk. Furthermore, this information should not be construed as a second opinion.

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Replying to DKB-Sheffield:
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By DKB-Sheffield
19th Sep 2021 23:50

Incidentally, my post above was drafted before Lionofludesch's response had been posted. I apoligise for any duplication!

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By Duggimon
20th Sep 2021 09:51

If you want a second opinion you really ought to at least post the first one you got.

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Replying to Duggimon:
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By Not Anonymous
20th Sep 2021 15:03

Duggimon wrote:

If you want a second opinion you really ought to at least post the first one you got.

The op has already got a load of third opinions on one of the Money Saving Expert forums.

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Replying to Not Anonymous:
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By sdyson31
20th Sep 2021 15:23

.

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