PayPerShop Forum

Hi All,

I started a limited company this year and working as a paid Director of it with monthly payroll setup. I ususally pay dividends from company to myself.

My question is; do these Dividend amounts need to be mentioned in payroll and should go in P60. I can see SA100 contains a seperate section for dividends.

But how to tackle this in Payroll and P60 or it can be all togehter omitted from Payroll.

Thanks in advance.
Yuri

Yuri,

I too run my own limited company but to be honest I don't bother with dividends in order to avoid any problems with HMRC over income shifting. Since my wife and I own the company we have real fears that despite the amount of work she does, the revenue will find a way of forcing us to assume all her earnings are actually mine. We use employer funding of pensions as good way of removing sums without any taxation implications at all and even the new income shifting regulations will not affect such arrrangements.

Accountants differ in their approach to this but the general consensus seems to be that it is best to keep them out of payroll altogether and to account for the income tax through the self assessment return instead. This is because income tax is correctly due on a dividend in the year following the one in which it is paid. The year of assessment is the year in which it is paid but the declaration of it is not due until 31 January following the end of the tax year. By taxing it in payroll you are in fact paying tax much earlier than it is due.

Don't forget that in addition to the 10% tax on the dividend you also have to add back the dividend to the taxable profit before calculating corporation tax so further tax is due at 18%, 22% after the budget.

You may need to consider the way you pay once the new CT rate for small businesses kicks in for 2008/2009. With a CT rate of 22% plus the dividend rate of 10% that means a true tax rate of 32% compared with the lower rate of income tax of 20% plus the 11% NIC. You will still save the employers NIC by making it a dividend but there are concerns that HMRC are pushing for these to be fully NICable and like everything else these days, they are likely to win.

Ian Whyteside

Hi Yuri

I run a payroll bureau for a firm of accountants. Generally the dividends don't get put on the payroll at all, although some clients e.g.those who we pay via BACS, obviously want the dividend amount included in their BACS payment. We just process it as a non taxable element, and it is then picked up for the self assessment tax the following year.