Business Advice
Salary or dividend?
What’s the most tax-eficient way to pay yourself in 2016/17?
Owner-managers and contractors often pay themselves in a combination of salaries, bonuses and dividends.
A common strategy is to draw a salary of around £8,000 while also extracting proits from the business as a dividend. A salary of £8,060 (for the 2015/16 tax year) preserves entitlement to the state pension and some beneits. It is also within the personal allowance and below the threshold for employer and employee national insurance contributions (NICs).
Some people opt for a higher salary to make better use of the personal allowance and, in doing so, help lower company proits which are liable for corporation tax. This option means that the individual will have to pay NICs on any salary exceeding £8,060 and the business will have to pay employer NICs.
It is then possible to take additional income as a dividend which are generally more tax-eficient than salaries or bonuses alone. The amount of tax due on dividends depends on an individual’s income tax band.
Reducing company tax liability
Managing a company always presents challenges, whatever the economic climate. Currently, a seemingly recovering economy offers opportunity to some business owners whilst remaining challenging for many. While some corporate balance sheets are awash with cash, many small and medium sized businesses – including high street retailers – are finding cash flow a challenge, even some of those benefiting from a growing market share. Don’t let tax be another problem this year. Stay ahead of developments and make sure you seek our professional advice. Here are some of the issues directors and company owners should know about tax in this financial year.
- Corporation tax rates and bands
- Corporation tax payment dates
- HMRC visits
- Research and development (R&D)
- Pensions
- Entrepreneurs’ relief
- Company cars
- ‘Green’ capital allowances
- Capital allowances
- Owner-director income
Regulation and rate changes: April 2013
New business rules and regulations come into effect on ‘common commencement dates’ in April and October each year. The new tax year also begins on 6 April, bringing new rates and allowances into effect.
Here’s our summary of some of the changes that may affect you and your business from April 2013.
Rates and allowances
- Income tax
- Corporation tax
- VAT
- Capital gains tax annual exemptions
- Individual Savings Accounts (ISAs)
- Research and development (R&D)
Legislation and regulations
- Reducing red tape
- Income tax
- Life insurance – qualifying policies
- Inheritance tax – spouses and civil partners domiciled overseas
- National insurance contributions for ‘sleeping’ and inactive limited partners
- Real Time Information (RTI)
- Overseas workday relief