[jhome]

I would appreciate if someone could correct me on this as this is mostly from memory.

I believe the using dividends for tax avoidance is either no longer effective or has been cracked down upon.

You can also give less to the government on your VAT if your profit (or revenues, I can't remember which!) is below 150,000 GBP. Rates vary between 9% and 15%.

[adwf]

Yep, they crack down on stuff all the time. Still slightly worth it as far as I know. You pay standard 20% income tax on the first £32k (with first ~£10k tax-free), then 40% upto £150k, 45% over that. Whereas with dividends you pay 10% on the first £32k income (minus allowances), 32.5% on everything upto £150k, 37.5% over that.

So it's still worth it, but not quite as much as it used to be before IR35.

[majc2]

Anyway, anyone going down this line really needs to speak to an accountant, yada yada yada.

For consultants/freelancers/contractors - dividends can be fine, if you can mitigate your exposure to IR35 (typically a bigger issue for contractors). Groups such as the PCG can really help here, but really the key thing is ensuring that any contract can't be thought of as disguised employment (control, substitutability and mutuality of obligation being the keywords) - speak to a Lawyer or a specialist accountant for advice or other clued up contractors for advice.

The tax position on dividends is also a bit more subtle than above; if your total personal income is less than the £32k (minus allowances), then you're going to get the dividend tax credit back so the div is tax free. Granted the company is paying corp tax at 20% on all profits; but also it gives you options to defer company income becoming personal income, building up the company's reserves. As I understand it, you can wind up the company and get entrepreneurs relief which is also a worthwhile target for consultancies.