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I'm a little confused. If you're paying dividends then you have to pay a tax on the company profits first, which is going to be 19%.

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&...

Yup, I am single earner earning £60k+ with a kid. Wife doesn’t work (extreme anxiety, working on it but takes time).

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.

In France, the household income is taxed if the relationship is official (not necessarily marriage, you have free, fast alternatives). You'll be taxed the same if both earn 30k or if only one earn 60k. If I take old and rounded references, in both cases, you'll be taxed 10% of what your household earn above 18k,and 30% above 48k. With a child, 10% above 22.5k and that's it (data from a few years ago, the brackets start a bit higher now).

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.

> a child count as .5 (except the third who count as 1 whole part do not ask me why)

Just the third child, or any after the second? If the latter, I would assume it's an incentive to have more children.

Just the third.

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 have the same problem in Canada and it's really frustrating. Our lifestyle would be better staying as is, but I get taxed insanely hard, even if my wife doesn't work.

Aren’t dividends taxed as income in the UK? I’m not certain but superficial googling seems to confirm it. They certainly are in other European jurisdictions so this “pay yourself dividends” does nothing to reduce tax paid.

the overall tax rate is lower, you also dont pay social security contributions. try getting a 50K dividend only payment vs a 50K payment via payroll. it's night and day

Ok, but I was responding to the OP claim that dividends were subject to a flat 20% rate. This is not the case - dividend income is added to your earned income for income tax purposes.

It's added but taxed differently. You are correct, I got the details wrong. I should have just written there are tax advantages to not being PAYE. Writing a concrete number (especially when I wasn't sure about the details), was bad.

In what European jurisdictions? For example in Slovakia dividends are taxed by a special tax rate (8% previous years, 10% from 2024) and that's all, so it's pretty good compared to the standard cca 20% (different tax rates, not sure which one applies when + there is some untaxed minimum but not much). In addition to that, if you are employed, you are paying (relatively huge) social and health insurance too, which you don't have to pay from dividends.

I’ve been a tax payer in Ireland, Switzerland and the UK. Dividends are treated as income in all three. However, from some superficial googling, it seems these 3 are not a particularly representative sample - without fully researching it, it looks like this approach to dividend income is not the way the majority do it although that doesn’t mean you save money by paying yourself dividends as the tax rates are often higher than income tax rates.

While the facts are largely correct ( though the government has moved to make it less attractive ) I think you have presented it in the wrong way - the problem is the advantageous tax environment for companies over people.

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.

False. The problem with the UK is that middle class expenses are much higher because what was provided by the state at highly effective cost is now a cost they bear privately.

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

While I'd agree these are problems - it's not true to say it's nothing to do with taxation - reducing the tax burden on the rich results in less funds for this sort of social provision.

Ahh yep, I agree with that as well. Having said that I think selling the assets and renting them back means that what tax revenue there is, is structurally at a disadvantage from the days when the UK was prepared to own assets

Dividend taxes depend on your income tax bracket and also affect it, so they are taxed as income. You get £2,000 tax free, then the rest is taxed as income.

From the link in your post:

Tax band Tax rate on dividends

Basic rate 8.75%

Higher rate 33.75%

Additional rate 39.35%

> take the rest as dividends which get taxed at 20%

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.

> Dividends should be taxed as income

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%).

I would agree if companies were taxed on revenue, not profits.

How is that relevant in relation to dividends, which are from already taxed profits, so artificially lowering profit to evade tax also lowers dividends?

I don't think that's necessarily true.

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.

> Regardless, corporate tax avoidance is well documented.

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?

> they are getting double-taxed

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.

> The second tax is levied on the shareholder's profits (i.e. the dividend) and is paid from the shareholder's bank account.

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.

All money gets taxed over and over whenever it changes hands. There's nothing unique about dividends that make taxing them "double taxation". This was ridiculed long ago in [1]

1: https://www.flickr.com/photos/upyernoz/9330340

Thats not true. Divident income is added to your normal income and taxed. There is a band and some free allowance and different buckets. But all in all it does not really matter if personal income comes from divident or work. Best would be to register yourself outside of the UK and live as a non domicile in the UK.

So all the comments made me start second guessing myself, so I went and checked. The difference is pretty staggering to me. You also don't pay national insurance on your dividend income, which helps. But you are right, you add the income from dividends to your regular income to figure out your tax bracket, but the rates are much lower:

https://www.gov.uk/tax-on-dividends

https://www.gov.uk/income-tax-rates

The dividend rates are a few percent lower, but remember to issue a dividend you must first make a profit and profit is taxed at 20% flat.

You get to take 20% dividends freely even with a minimum wage in the UK? That’s cool but crazy if that’s all it takes to evade employment tax. Here in NL if your company mainly sells your own labour you’re only allowed to take dividends after paying yourself 2-3x the minimum wage and even that is restricted.

> “…common thing to do is to start your own company, pay yourself minimum wage…”

Are UK public benefits equal if you earn minimum wage Vs. higher income?

perfectly said.

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