PAYE v's Dividends

kdowling

I am in employment 4 days a week as a PAYE worker but I am also a director of a limited company that I work with on 2-3 days a week. I earn approx €55,000/year from my PAYE work and have not yet drawn a salary from my limited company which is 10 months old. There is €20,000 that can be drawn as a salary but I am not sure whether I would be better off from a tax point of view to pay myself a salary from the company through the PAYE system or to give myself a dividend at the end of the year. My (limited) understanding is that if I draw a PAYE salary I will get taxed at the higher rate of 41% but that the dividend would be taxed at 20%. Since it is a start up company we are emempt from corporation tax.
If anyone could help me on this issue I would really appreciate it.

kranbo

not sure if you can take a dividend but it will not make any difference - you will pay tax on it at your marginal rate ie 41%

Alan Shore

As Krambo says its the same difference.
The dividend is subject to 20% Dividend withholding tax at source but is subject to Normal Income tax PRSI & USC just like salary when you do your Tax Return.

kdowling

thanks for the help lads. that's what i was afraid of!
Does anyone know any loop holes as to how the company money can be withdrawn as income without being subjected to the 41%. I'm way off retirement so a directors pension isn't an option.
You hear of smart accountants that utilise various loopholes for these things, unfortunatrly my accountant is not one of them!!

srsly78

Dividends are the method of choice in the UK, not here. Different rules. What you wanna do is setup an executive pension and dump all profits in there. Done. I don't think you understand what a pension is btw, it is your best option, regardless of your age. This is the last year you can avail of 41% relief on pension possibly, it is rumoured that they are reducing this so standard rate relief. So take advantage while you can.

kdowling

thanks srsly, forgive my ignorance but if it is put in a executive pension does that not mean that I cannot access that money until I am 65? Is it possible to use money in an executive pension to invest in property/business ventures?
These probably sound like stupid questions but I obviously know very little about pensions etc.
I'm gonna go and see a financial advisor but I just don't have the time at the minute!

kranbo

kdowling wrote: »

thanks for the help lads. that's what i was afraid of!
Does anyone know any loop holes as to how the company money can be withdrawn as income without being subjected to the 41%. I'm way off retirement so a directors pension isn't an option.
You hear of smart accountants that utilise various loopholes for these things, unfortunatrly my accountant is not one of them!!

There are no loop holes to taking money out of the company. The only way a director can extract money from a company is via a directors loan. However the company has to pay Income Tax @ 20% and the loan has to be repaid eventually by the director.

Have you invested any money in the company ie working capital etc? If so same can be withdrawn withdrawn without any Tax/PRSI implications

srsly78

kdowling, what you are missing is that a pension IS an investment.