The usual thresholds of income that clients are interested in are:
- Basic rate – higher rate tax threshold;
- Clawback of child benefit threshold;
- Loss of personal allowance threshold; and
- Higher rate-additional rate tax threshold.
So how do you do the calculation for your dividend capacity?
- Estimate your current other income, salary (about £10,000 as a contractor), add interest income, property profits and any other income. Remember to include the tax credit on interest income.
- Calculate the gross dividends you have already received in the year from investments (the dividend and the tax credit will be shown on your tax voucher).
- Calculate the gross dividends you have already taken from your contractor company. The cash amount you transferred from your company account to your private account is the net amount, so you need to gross this amount up for the tax credit. Multiply the cash you have received by 10/9
- Add all these sources of income together; this is your total income to date.
- Which threshold are you interested in?
- Compare your total income with the threshold you are interested in.
- The difference between the two is your spare capacity for further dividends BUT this is for gross dividends. To calculate the amount of cash to pay you need to multiply the capacity by 9/10
The thresholds including the tax free personal allowance are:
Basic rate-higher rate total income of £41,865 (2014-15)
Child benefit £60,000 (2014-15)
Loss of personal allowance threshold £100,000 (before personal allowance)
Higher rate – additional tax rate threshold £150,000 (no personal allowance)
If you need help with this calculation then contact your accountant or call Clearways Accountants on 01737 244298 or use the contact form below.