PAYE and Div - confused

Need a bit of help to understand PAYE tax and Dividend tax

Didn't find your answer?

I would really appreciate some help, I have been trying to get my head around the tax regime when it comes to PAYE and Divident Income (Ltd Co)

If your salary is say 47,000 per year (normal tax code) - then you are a basic rate tax payer at 20%.

However if you then say get a dividend of 10,000 - does this mean that your total income makes you a higher rate tax payer and you therefore have to pay 40% on a portion of your wages.  How is this paid, is it grabbed back by HMRC later on?

I understand that this would then mean your dividend is at 33.75% too.

I guess what I am trying to understand is if you have a total of say 57k total income does that mean you have to go back a pay additional PAYE tax on your salary?

It seems quite a challenge to really get a grasp of your marginal rate of tax.   If you take the above 10k divi in this scenario are you shooting yourself in the foot due then being taxed higher on the divi and also your wages.  Are you really getting stung at this sort of level, is it even worth it?

I probably have not explained it very well nbut I am sure the talent peeps on here will get where I am coming from.   

The actual precise figures are 47,460 salary + the following potential divident scenario's (1) div of 6800 (2) divi of 8000 (3) div of 10,000,

Help !

 

 

Replies (19)

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By daniel_
08th Mar 2024 09:09

If you have untaxed income like dividends, you will be required to file a Self-Assessment tax return.

At the end of the year you tell HMRC all your sources of income and calculate your total tax, deduct tax already paid through PAYE and work out what your tax bill is, and then pay it.

No you're not getting stung, you're paying the correct amount of tax for your income. You also get to pay it by 31/01 of the following year, and watch out for Payments on Account.

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Replying to daniel_:
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By David Marks
08th Mar 2024 12:03

Thanks for your reply. You said it would be required to fill out a self-assessment, this is not correct and is not required on dividends below 10k, although yes you do need to tell them about other income for tax purposes.

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Replying to David Marks:
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By Wanderer
08th Mar 2024 14:50

Bless! 5 minutes research backed up by dumbed down .gov.uk advice & you are telling an accountant in practice what's correct or not.

Don't bother linking to the HMRC web site showing where you have read this. In practice the reality is quite different to what is stated online.

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Replying to Wanderer:
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By Paul Crowley
08th Mar 2024 15:42

Agree
The simple versions really obfuscate rather than help.

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Replying to Wanderer:
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By David Marks
09th Mar 2024 15:42

Bit of an arrogant and condescending reply that dont you think. I expect you are one of those that looks down on non-accountant people and I get this is your domain but you dont need to speak to people like that. I came across this website just last week and thought I would give it a try, thinking I wonder if there will be a smart [***]. Didn't think I would come across one quite so quickly.

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Replying to David Marks:
RLI
By lionofludesch
09th Mar 2024 16:16

David Marks wrote:

Bit of an arrogant and condescending reply that dont you think. I expect you are one of those that looks down on non-accountant people and I get this is your domain but you dont need to speak to people like that. I came across this website just last week and thought I would give it a try, thinking I wonder if there will be a smart [***]. Didn't think I would come across one quite so quickly.

How arrogant were you in your reply to daniel?

Pot, black, kettle.

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Replying to lionofludesch:
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By David Marks
09th Mar 2024 17:01

Not at all.

I said the following:

" Thanks for your reply. You said it would be required to fill out a self-assessment, this is not correct and is not required on dividends below 10k, although yes you do need to tell them about other income for tax purposes. "

I thanked him for his reply. Simply stated that the Government website indicated that filling out on self assessment was not required and that a clause in his reply was incorrect. He for whatever reason took it as a criticism, that's up to him. I know it wasn't. I do not think what he replied was was called for in any way. At least Doug tried to answer the question I had asked.

But okay, I will leave you guys to it then. It was a first post from me, but I guess the last now. Thanks for those that replied.

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Replying to daniel_:
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By AdamJones82
08th Mar 2024 21:19

Honestly, Daniel, fancy getting it wrong ;-)

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By Paul Crowley
08th Mar 2024 10:40

You only pay higher rate tax on the income above the basic rate band. Best to just pay it, far easier to understand than having it coded out through PAYE two years after.
If this is your company, sole shareholder, then you really need advice on tax efficient profit extraction

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By Truthsayer
08th Mar 2024 10:52

An accountant can explain this in precise detail for a fee.

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By David Marks
08th Mar 2024 12:10

I guess the thing I am getting at is that if you are at the margins on the higher rate threshold you only need to be just over it, for a dividend of 10k for example to be taxed at 33.75% which together with 40% on a portion of your wages adds up to a fair bit extra. You almost need to be well through the threshold to make it really worthwhile it seems.

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Replying to David Marks:
Stepurhan
By stepurhan
08th Mar 2024 12:24

Congratulations on working out why tax planning for your income is important. May I suggest you take advice from a paid-for professional to advise you on all your options based on your specific circumstances.

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Replying to stepurhan:
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By Paul Crowley
08th Mar 2024 12:35

Agree
OP would save so much more than he would pay in fees.

Still, his choice, who needs accountants and tax advisers anyway?

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Replying to David Marks:
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By Paul Crowley
08th Mar 2024 12:33

You clearly do not understand how tax works based on that comment. Best to book a no fee meeting with a local accountant so that you can understand the way tax works
Dividend tax is instead of the ordinary income tax, not in addition to.

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DougScott
By Dougscott
08th Mar 2024 13:18

In your example and for this tax year I would say £47460 - £12570 personal allowance = £34890 leaving a margin £2810 before you hit the higher rate threshold of £37,700.

The dividend income is taxed seperately so if it was £10,000 you deduct £1000 dividend allowance which leaves £9000 taxable. Of this you tax £2810 at the lower rate of 8.75% and the remaining £6190 at the higher rate of 33.75% so you would have a total of £2335 more tax to pay.

That's my theory anyway!

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Replying to Dougscott:
DougScott
By Dougscott
08th Mar 2024 13:23

And if you owe tax to HMRC you need to tell them whether or not your dividends are less than £10000.

And if it's your limited company then you really need/must have an accountant who will advise you on all this as others have said.

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Replying to Dougscott:
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By FactChecker
08th Mar 2024 20:14

Note (for OP, Doug will know anyway):
- all those figures are illustrative only and, aside of anything else, may be subject to change at the whim of any passing Chancellor of the Exchequer (as in the Dividend Allowance being halved from 6th April onwards)!

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Replying to FactChecker:
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By Not Anonymous
09th Mar 2024 07:23

FactChecker wrote:

Note (for OP, Doug will know anyway):
- all those figures are illustrative only and, aside of anything else, may be subject to change at the whim of any passing Chancellor of the Exchequer (as in the Dividend Allowance being halved from 6th April onwards)!

Or it not even being an "Allowance" in the normal sense which could easily impact the op if HICBC is an additional factor they have to contend with (for the current tax year).

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By pauld
08th Mar 2024 15:39

There's always a good Friday post to kickstart the weekend................

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