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Dividends - what are the tax advantages? How do they work?

  • 01-03-2016 2:20pm
    #1
    musicformedia
    Registered Users, Registered Users 2 Posts: 181 ✭✭


    Hi guys, I have a ltd company with two directors (myself and wife). I pay myself a salary each month and my accountant said that I should pay myself a dividend once a year.

    I've read in plenty of places online that dividends have tax advantages but my accountant seems to think otherwise and told me its just like paying yourself a lump sum and its never tax free.

    I can't find any definitive information on them online. Can anyone explain what the benefits of paying yourself a dividend are?

    Thanks!


Comments

  • #2
    viztopia
    Closed Accounts Posts: 770 ✭✭✭viztopia


    in my personal opinion dividends are not an efficient way of extracting money from a company but I am open to correction. While they will help avoid a close company surcharge they are added back to profits for corporation tax purposes so the company is effectively paying 12.5% tax on the dividend paid. when you receive the dividend then you pay tax on these at your marginal rate of tax which would be the same if you took the amount of dividend as a wage from the company. So why not just take the money from the company as a wage and pay the tax and save the company the 12.5%? this is my thinking anyway and would like to hear from other posters!


  • #3
    OttoPilot
    Registered Users, Registered Users 2 Posts: 540 ✭✭✭OttoPilot


    Google "Surcharge on undistributed income of service companies". Basically, there is a surcharge on any reserves left in the company after 18 months because to revenue, you have only paid 12.5%, whereas if you withdrew profits as salary you'd be paying tax at 40-50% (roughly) so they are losing out.

    It may or may not apply to your company. If you were paying out all your profits in salaries I believe you can avoid this also as you would have no reserves.


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