Showing posts with label salary. Show all posts
Showing posts with label salary. Show all posts

Monday, November 21, 2016

Dividend strategies for post April 2016

Prior to 6 April 2016, there was generally a tax advantage to extracting profits by way of dividends, often once a salary had been taken to utilise the personal allowance and ensure entitlement to certain state benefits. With the new dividend taxation regime from 6 April 2016, the tax advantage of dividends as opposed to salary / bonuses is reduced or in certain cases eliminated entirely. However, dividend planning is still important and is not as straightforward as it appears on the surface. Dividend planning strategies include cashflow and administrative ease as well as tax savings.

Many companies distribute dividends on a monthly basis as a means of providing themselves with a 'salary-like' income. In many cases it is only through habit and there is no reason that these frequent distributions shouldn't be replaced by a less frequent dividend followed by drawings against their current account with the company.

Sunday, March 16, 2014

Optimum salary for directors: changes this year

This is one of the questions we hear most often: what is the optimum salary I should take as a director?

There are many salary calculators on the web that you can use but the easiest way in the past has been to take the maximum salary that does not attract taxes nor national insurance, neither for the employee nor for the employee (see our previous article). In 2013/2014 that amount was £7,696 pa. But in 2014/2015, due to the new £2,000 Employment Allowance, there is now a new option for directors' salaries:
  1. If the company is able to use all the £2,000 Employment Allowance in the year, then the best route for the Director’s salary will be to pay over the LEL but below the secondary level in 2014/15 i.e. £7,956 pa (£663 per month). The rest will have to topped up by dividends as per in the previous years.

Thursday, March 28, 2013

What is the optimum salary for a director?

It's common practice for directors of small businesses who are also the company owners to pay themselves a small salary and then take the rest of their income as dividends from the available profit. The reason is for tax efficiency. A company starts paying corporation tax from the first pound of profit and salaries being an expense, they reduce that profit. Dividends on the other hand are distributed after corporation tax of 20% (for small businesses) has been paid. The problem with salaries on the other hand is that they can be heavily taxed on the recipient and also they generate significant Class 1 National Insurance Contributions (12% for the employee and 13.8% for the employer). Thankfully Income Tax and NIC are only charged after you earn a certain amount per year.

From 6th April 2013 the rate at which you can pay a salary to an employee without suffering Income Tax and NIC will increase from £7,488 to £7,696 per annum. This is known as the Employers’ Earnings Threshold. If you have Limited Company and pay yourself a small salary then you should consider increasing the salary up to this threshold.