So if the company declares a profit of 60k then it'll pay 11,400 in corporation tax, and then 20% on the remaining £48,600, for another £9,720. Total tax of £21,120. (There's a 1k allowance now for dividends, but it basically makes no difference here).
If you just paid tax& NI on that £60k you'd have total deductions of £16,417 [1], because there are significant allowances for income tax/NI.
So you'd definitely be better off just paying PAYE.
There is a gain if you can split the payments between two of you and pay you both as PAYE.
[1] see https://listentotaxman.com/index.php?year=2023&taxregion=uk&...
I am significantly worse off than if I was able to drop salary and she started working. Both with the tax bands but also with child benefit being removed once £60k has been hit. My friends were earning around £45k - £50k each - combined salary of £95k, and still received £80ish a month in child benefit. We lost out because I was earning £60k.
The only real benefit I get is being above the 40% tax bracket, I get a boost with my salary deduction for pension payment (pretax), but I am half expecting this to be raided soon, and I can’t pay enough into it anyway atm (cost of living crisis+ single earner for family renting in outer London).
Could be worse but still, fml sometimes.
Basically, one adult count as 1 part, a child count as .5 (except the third who count as 1 whole part do not ask me why), you take total income and divide it by the number of part, and check where it lands in the tax brackets.
Just the third child, or any after the second? If the latter, I would assume it's an incentive to have more children.
Also,you have other benefits (tied to retirement mostly) where getting your 3rd child is really advantageous, but every child past that isn't.
I tend to think the best way to persuade governments to close tax loopholes that the elite use is to encourage everyone to use them - ie if everyone had an offshore company trust then suddenly the government would stop dragging it's feet over them.
Housing and education is expensive because social housing was sold and marketised removing an anchor on rental and ownership prices.
Expensive finance enabled the marketisation of tertiary education and so now instead of no debt, middle class graduates have ~$100k.
Healthcare is being sold to, again, enable marketisation.
This all leads to a middle class that is legitimately worse off that it was. Nothing to do with taxation, everything to do with the removal of the social provision of a ladder into middle class for the next gen
Are UK public benefits equal if you earn minimum wage Vs. higher income?
As someone who lives outside the UK, I find this astounding. Dividends should be taxed as income, not capital gains. Sure, it's one of the reasons why stock buybacks are more popular in the US than dividends (because stock buybacks are capital gains, not income), but that's beside the point. Dividends are not the growth of capital, they are the proceeds from capital.
Why? Dividends are already taxed income - they are payed out from company's earnings after taxes (etc), so ideally there would be 0% dividend tax, because otherwise they are getting double-taxed (unless for jurisdictions where the company income/profit tax is 0%).
Regardless, corporate tax avoidance is well documented. Suggesting that because they avoided it once the benefactor needn't pay meaningful tax on receipt is borderline facetious.
Yes. But taxing the revenue is a) already sort of done through VAT (if selling to public etc) and b) not a very good idea in general - it will make prices of everything higher for everyone. If a company is a low-margin mass-producer, their prices will be immediately +Tax%. This, to be popular, would mean the revenue tax would have to be low, which sort of defeats the original purpose.
> they avoided it once
who avoided what?
Clarify who "they" is.
The first tax is levied on the corporation's profits. This tax is collected regardless of whether the corporation ever pays a dividend. The tax is paid from the corporation's bank account.
The second tax is levied on the shareholder's profits (i.e. the dividend) and is paid from the shareholder's bank account.
The first tax is not on an individual's income and individuals may not freely enjoy the fruits of the corporation's profits for their personal ends. The money belongs to all shareholders. This is why there is very little leeway on using corporate funds to make purchases on items like cars - they are company cars, not private cars, and if the beneficiary leaves the company, they are supposed to lose access to company property. It is the freedom of the shareholder to decide what to do with the proceeds that makes it the shareholder's income and therefore subject to the second tax.
Not necessarily, in our country the second tax is also payed by the corporation from the corporation account as a part of dividend payout.
> The first tax is not on an individual's income
Both the first and the second tax are on the same income. No activity took place between the first and second taxation.
> The money belongs to all shareholders.
What if there is one shareholder?
> This is why there is very little leeway on using corporate funds to make purchases on items like cars
The company is AFAIK not paying profit tax when buying a car, but it is paying profit tax before paying dividends.
> It is the freedom of the shareholder to decide what to do with the proceeds that makes it the shareholder's income and therefore subject to the second tax.
The company does not buy company property (like the mentioned cars) with taxed income, it buys company property with cash before taxation (or even better leases the car and then uses the rates to lower declared profits). So it's wrong to compare those two.
I understand why the dividends are double-taxed - some creative minds would otherwise find a way to get them completely tax-free. But it's a band-aid, not something fundamentally correct.
From the link in your post:
Tax band Tax rate on dividends
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%
the tax squeeze for paye as a single earner sucks. the uk instead of growing the economy, tax revenues through innovation they would rather tax the hell out of the working masses
The common thing to do is to start your own company, pay yourself minimum wage and take the rest as dividends which get taxed at 20%. Then you also get to expense certain things and reduce your tax liability further.
It also screws over single earners significantly. A household where a single person makes 60k is _significantly_ worse-off than a household where two people make 30k each. Having your own company allows you to hire your SO and thus get double the tax free allowance even if only one of you is working.
It creates a tragedy of the commons situation. Anyone not doing the above gets absolutely shafted by the tax man. Anyone doing that, is taking advantage of everyone else paying full tax. As more and more people do that, less people are paying tax, so the government raises taxes further squeezing the middle class.
Edit: some people in the comments are saying this is not true, so it may not be. I don't do this, so I wouldn't know. Friends say they do this and have been trying to convince me that it's worth it. I don't know the exact details and I'm starting to doubt myself.
Further edit: Had to check, but indeed the tax on dividends is lower. So between £12,571 to £50,270 your income is taxed at 20%, but as dividends it's 8.75%. Then regular income over 50k is taxed at 40% whereas dividends are taxed at 33.75%. You also don't pay national insurance on your dividend earnings, which further lowers tax. I'm guessing the 20% figure I was told is what it averaged out as. Sources:
https://www.gov.uk/tax-on-dividends
https://www.gov.uk/income-tax-rates