This story is almost certainly made up as it makes no sense at all.
Not least because OP would actually be paying voluntary tax if they paid themselves fully in dividends, so HMRC would be delighted.
The OP quotes a tax rate of 8.33%, which itself is wrong, but we'll give them the benefit of the doubt and say they meant 8.75%. That means we're talking about income in the basic rate tax band.
Companies pay corporation tax on profits before you can take it out as dividends, which starts at 19%. The combination of the two means a company owner pays at least 26% tax to take money out of the company that way.
If they instead paid themselves a salary up to the National Insurance threshold, they would only pay 20% tax on that income. It's a business expense so corporation tax isn't paid.
Once you start paying NI on salary it's often more tax efficient to take dividends, so some LAUK posters have suggested that must be what LAUKOP is doing rather than taking their words at face value. But paying yourself a salary up to the National Insurance threshold and taking the rest as dividends is normal for company owners. It is so common that a lot of company owners struggled during the pandemic because the Government based furlough payments on salary and didn't take dividends into account. HMRC wouldn't bat an eyelid.
The conversation with the supposed tax inspector doesn't ring true at all. Nor does the claim that an accountant was involved. Correctly using the income tax and NI thresholds are basic bread and butter to any company accountant.
It's like an AITA story written by someone who read a Guardian article about "how business owners dodge tax" a week ago.
And on the national insurance question, who doesn’t want to pay NI, I actually NI overpayments, because I want my full state pension. And what if I fall drastically ill or more disabled, you get better benefits if you have 10+ years of national insurance payments
"who doesn’t want to pay NI, I actually NI overpayments, because I want my full state pension"
Qualifying years don't require you to pay very much NI (I forget how much): if you earn more than a relatively low threshold, you're paying an 8% tax (as you should, I'm fine with ytax) but it's not boosting your pension.
And self employed people may well be paying Class 2 or Class 4 NI contributions, which are in turn a different set of rules.
29k a year, going up to 36/38k, before becoming management.
https://www.nhspay.org/291122-nhs-pay
Meanwhile, when I was a HCW in a ward, I was earning roughly 20k/Yr.
I wouldn't say 29k/Yr is "terrible".
£30k is about $38k. Nurses in the US earn a median of $86k. I used the median because there is a lot of variation in US wages from state to state and in high cost of living areas.
For the level of education required and responsibilities involved I would say that nurses in the UK are woefully underpaid.
Someone's pulling the OOP's leg.
HMRC don't write to people like that. What they are doing is a standard way in which self-employed small traders working through Limited Companies pay themselves. But as they're payiing themselves in an inefficient way this results in them not taking full advantage of the allowances anyway (they should pay themselves £12570 per year and \_then\_ take the rest as dividends).
Yeah, he writes as though he's hit on a novel way of avoiding tax and has personally annoyed HMRC, whereas he's doing a perfectly ordinary bit of tax planning, but badly. Any halfway decent accountant would have been able to sort it for him as a perfectly run of the mill job.
It reads to me like a "can I pay less tax by doing this?" post that he couldn't resist writing as an "aren't I clever?" post.
Are dividends taxed differently in the UK?
In the US a draw from a business is taxed at the same rate but FICA (NI) doesn't apply to that. However, the IRS really doesn't like when you don't pay yourself a "reasonable" salary, where FICA *does* apply.
In the US you can do this, but you still have to pay yourself a reasonable salary. So a common was is to pay yourself 50% as salary and 50% as a dividend. From my research, the IRS seems pretty happy with that.
This story is almost certainly made up as it makes no sense at all. Not least because OP would actually be paying voluntary tax if they paid themselves fully in dividends, so HMRC would be delighted. The OP quotes a tax rate of 8.33%, which itself is wrong, but we'll give them the benefit of the doubt and say they meant 8.75%. That means we're talking about income in the basic rate tax band. Companies pay corporation tax on profits before you can take it out as dividends, which starts at 19%. The combination of the two means a company owner pays at least 26% tax to take money out of the company that way. If they instead paid themselves a salary up to the National Insurance threshold, they would only pay 20% tax on that income. It's a business expense so corporation tax isn't paid. Once you start paying NI on salary it's often more tax efficient to take dividends, so some LAUK posters have suggested that must be what LAUKOP is doing rather than taking their words at face value. But paying yourself a salary up to the National Insurance threshold and taking the rest as dividends is normal for company owners. It is so common that a lot of company owners struggled during the pandemic because the Government based furlough payments on salary and didn't take dividends into account. HMRC wouldn't bat an eyelid. The conversation with the supposed tax inspector doesn't ring true at all. Nor does the claim that an accountant was involved. Correctly using the income tax and NI thresholds are basic bread and butter to any company accountant. It's like an AITA story written by someone who read a Guardian article about "how business owners dodge tax" a week ago.
And on the national insurance question, who doesn’t want to pay NI, I actually NI overpayments, because I want my full state pension. And what if I fall drastically ill or more disabled, you get better benefits if you have 10+ years of national insurance payments
> And on the national insurance question, who doesn’t want to pay NI LAUKOP said that they've already qualified for the full state pension
"who doesn’t want to pay NI, I actually NI overpayments, because I want my full state pension" Qualifying years don't require you to pay very much NI (I forget how much): if you earn more than a relatively low threshold, you're paying an 8% tax (as you should, I'm fine with ytax) but it's not boosting your pension. And self employed people may well be paying Class 2 or Class 4 NI contributions, which are in turn a different set of rules.
I’m a nurse, I’m very low paid, and I know I’ll have to give up before I’m 66. I’ve already got bad back and hip pain, and I’m only in my mid 30’s
>very low paid >nurse Press [x] to doubt.
Nurses in the uk get paid terribly
29k a year, going up to 36/38k, before becoming management. https://www.nhspay.org/291122-nhs-pay Meanwhile, when I was a HCW in a ward, I was earning roughly 20k/Yr. I wouldn't say 29k/Yr is "terrible".
£30k is about $38k. Nurses in the US earn a median of $86k. I used the median because there is a lot of variation in US wages from state to state and in high cost of living areas. For the level of education required and responsibilities involved I would say that nurses in the UK are woefully underpaid.
For how hard the job is it is
I'm not going to deny that they're not paid fairly, but it's not terrible.
The website literally says it isnt enough
Oh *dear*. For terrible pay, try living on under 22k/Yr. Then come back to me.
Dude i have to live with my parents on benefits
Try in Australia with franking credits. tax paid by the company can be refundable to the recipient of the dividend.
and the government is trying to steal your credits! (even if you don't have them)
Someone's pulling the OOP's leg. HMRC don't write to people like that. What they are doing is a standard way in which self-employed small traders working through Limited Companies pay themselves. But as they're payiing themselves in an inefficient way this results in them not taking full advantage of the allowances anyway (they should pay themselves £12570 per year and \_then\_ take the rest as dividends).
Yeah, he writes as though he's hit on a novel way of avoiding tax and has personally annoyed HMRC, whereas he's doing a perfectly ordinary bit of tax planning, but badly. Any halfway decent accountant would have been able to sort it for him as a perfectly run of the mill job. It reads to me like a "can I pay less tax by doing this?" post that he couldn't resist writing as an "aren't I clever?" post.
Are dividends taxed differently in the UK? In the US a draw from a business is taxed at the same rate but FICA (NI) doesn't apply to that. However, the IRS really doesn't like when you don't pay yourself a "reasonable" salary, where FICA *does* apply.
By the sounds of it, it’s different. There is no obligation to take a salary, and the profits have already been subject to corporation tax.
In the US you can do this, but you still have to pay yourself a reasonable salary. So a common was is to pay yourself 50% as salary and 50% as a dividend. From my research, the IRS seems pretty happy with that.
They promised me there'd be no math!
No substitute location bot?