It is therefore possible to pay yourself entirely by way of dividend if you wish, providing you are also a shareholder of the company.
The person you spoke to may not therefore be paying any income tax on their dividends.
However their company will be paying 20% corporation tax on its profits used to pay the dividend.
Can I pay myself dividends instead of salary?
Dividends are only payable from post-tax profits so, if you’re not yet turning a profit and need to take out funds, you’ll have to do this via a salary instead. The main benefit of extracting dividends from your company is that, unlike salary, they are not subject to NICs.
How much should I pay myself in dividends?
Paying yourself through dividends
Dividends are paid to shareholders when the business makes profit. 7.5% on dividend income within the basic rate band. 32.5% on dividend income within the higher rate band. 38.1% on dividend income within the additional rate band.
When can you pay yourself a dividend?
Dividend payments must be taken after corporation tax on the company profits is accounted for.
Can I pay myself dividends monthly?
You can pay yourself dividends as often as you like, although we generally recommend monthly or quarterly. We do advise clients to keep dividend and salary payments separate and pay each shareholder separately in the correct proportions, just to provide a clear audit trail.
What is the maximum dividend tax free?
In both the 2018-19 and 2019-20 tax years, you won’t need to pay any tax on dividend income on the first £2,000 you receive. This is called the tax-free dividend allowance. The allowance was cut from £5,000 in the 2017-18 year.
Is it better to pay yourself a salary or dividends?
Although salary is taxed at a higher rate than dividends, there are several reasons to consider paying yourself a salary. For one, you receive a legally recognizable personal income. If you rely on forced retirement savings, it’s better to take a salary so you don’t fall behind on contributions.