Salary versus Dividends

Contents

Chapter 1 Introduction

1.1 Why is the Salary/Dividend Question So Important?
1.2 Which Companies are Affected?
1.3 Marginal Rates and the Inevitable Trade-Off
1.4 What's the Difference?
1.5 Salary or Bonus?
1.6 Scope of this Guide
1.7 A Note About 'Revenue and Customs'

Chapter 2 Overview of How Companies and Directors are Taxed

2.1 Corporation Tax Relief
2.2 Small Companies
2.3 Corporation Tax on Dividends
2.4 Marginal Tax Rates for Directors
2.5 Employer's National Insurance Contributions
2.6 Cashflow
2.7 Other Factors Affecting Tax on a Salary or Dividend

Chapter 3 The Taxcafe Computer Model

3.1 Introduction to the Model
3.2 Model Results 2006/2007
3.3 Small Companies: Accounting Periods Beginning Before 1st April 2006
3.4 Summary of Computer Model Results

Chapter 4 Planning Dividend or Bonus Payments

4.1 Step by Step
4.2 Planning for Profit
4.3 Timing
4.4 Using the Model for More Complex Decisions
4.5 Increasing Director's Income
4.6 Reducing Taxable Profit
4.7 Using the Tables
4.8 Simple Case Study
4.9 Case Study II
4.10 Spreading the Cost
4.11 What Can We Conclude for Certain?
4.12 Bottom-Up Planning
4.13 Small Companies: Profits Not Exceeding £305,035
4.14 Medium-Sized Companies: Profits Between £305,035 And £1,507,460
4.15 Large Companies: Profits Exceeding £1,507,460
4.16 Summary of 'Bottom-Up' Planning
4.17 The Bigger Picture

Chapter 5 Using Loan Accounts

5.1 Exploiting Tax Advantages
5.2 Lend to Save
5.3 Medium-Term Benefits
5.4 Long-Term Benefits
5.5 Very Long Term
5.6 Interest on Loan Accounts

Chapter 6 Multiple Owners

6.1 Background
6.2 Corporate Couples
6.3 Unequal Couples
6.4 Bottom-Up Planning for Couples
6.5 Other Co-Owners
6.6 Family Companies
6.7 Minority Shareholders
6.8 Company Budgets
6.9 The Composite Rate Approach
6.10 Every Loser Wins

Chapter 7 Companies With Different Tax Rates

7.1 Associated Companies
7.2 What is an Associated Company?
7.3 Short Accounting Periods
7.4 Long Accounting Periods
7.5 The Corporation Tax Threshold Formula
7.6 Loss-Making Companies
7.7 Close Investment Holding Companies

Chapter 8 Older Directors

8.1 Privileges of Age
8.2 Age-Related Allowances
8.3 Withdrawal of Allowances
8.4 National Insurance for Older Directors
8.5 Marginal Tax Rates on Salaries and Bonuses for Older Directors
8.6 Directors Aged 65 or Over
8.7 Female Directors Aged 60 to 64
8.8 When I'm 64
8.9 Younger Directors with Older Spouses
8.10 Marginal Rates on Dividends for Older Directors
8.11 The Taxcafe Computer Model for Older Directors
8.12 Older Directors of Small Companies
8.13 Planning Payments to Older Directors

Chapter 9 Directors with Children

9.1 The Impact of Tax Credits
9.2 Working Tax Credits
9.3 Child Tax Credits
9.4 Childcare Costs
9.5 Family Element
9.6 The Income Disregard
9.7 Tax Credits and Salary or Bonus
9.8 Tax Credits and Dividends
9.9 The Taxcafe Computer Model for Directors with Children
9.10 Model Conclusions for Directors with Children

Chapter 10 Paying Dividends, Salary or Bonuses in Practice

10.1 Welcome to the Real World
10.2 Commercial Considerations
10.3 Impact of Dividends on Share Value
10.4 Justifying Salaries or Bonuses
10.5 Paying a Dividend
10.6 Frequency and Amount of Payments
10.7 The National Minimum Wage
10.8 State Pension Entitlement
10.9 Unclassified Withdrawals

Chapter 11 Pension Contributions

11.1 The New Pensions Regime
11.2 Company Contributions
11.3 Personal Pension Contributions

Chapter 12 Non-Cash Payments

12.1 Payment in Kind
12.2 Bonus in Specie
12.3 The Car Bonus

Chapter 13 The Third Way – Capital Growth

13.1 Maximising Capital Growth
13.2 Best of Both Worlds
13.3 Safeguarding Taper Relief
13.4 Guiding Principles

Chapter 14 Special Cases

14.1 Personal Service Companies
14.2 'Husband and Wife' Companies

Appendix A Tax Rates and Allowances
Appendix B Sample Documentation
Appendix C Dividends Paid by Small Companies Before 1st April 2006
Appendix D The Taxcafe Computer Model 2006/07
Appendix E Directory of Computer Model Results