Salary Vs Dividends on company profits
Discussion
Hi,
Can I please check my maths and understanding is right, given recent tax changes.
It used to be the case that there was a saving paying company profits as dividends rather than salary.
I don't think that is true anymore.
My basic maths, for a £1000 of company profit. Assuing this slice is in the upper tax bracket, but under 100k:
As Dividend, First pay 25% corporation tax, then 33.75% dividend tax. Left with £496 in pocket.
As Salary, First pay Employers NI 13.8% then 42% Income tax plus NI. Left with £499 in pocket.
Am I missing something? Other than maxing out pensions from company funds, which seems a no brainer now.
Thanks
Can I please check my maths and understanding is right, given recent tax changes.
It used to be the case that there was a saving paying company profits as dividends rather than salary.
I don't think that is true anymore.
My basic maths, for a £1000 of company profit. Assuing this slice is in the upper tax bracket, but under 100k:
As Dividend, First pay 25% corporation tax, then 33.75% dividend tax. Left with £496 in pocket.
As Salary, First pay Employers NI 13.8% then 42% Income tax plus NI. Left with £499 in pocket.
Am I missing something? Other than maxing out pensions from company funds, which seems a no brainer now.
Thanks
Salary is marginally more tax efficient above £50k but dividends are still rather more tax efficient below £50k so overall, on balance, I think you’re better off still taking income as dividends.
Indeed overall tax deductions above £50k is over 50% so you’re better off staying under that threshold if you can meet your living expenses from it, and then SIPP as much as possible above that.
An EV is also a useful form of tax relief - the company effectively funds all our day to day motoring costs.
It’s pretty fked when such a basic income is taxed so heavily.
Indeed overall tax deductions above £50k is over 50% so you’re better off staying under that threshold if you can meet your living expenses from it, and then SIPP as much as possible above that.
An EV is also a useful form of tax relief - the company effectively funds all our day to day motoring costs.
It’s pretty fked when such a basic income is taxed so heavily.
trickywoo said:
You are best taking £758.33 a month paye and a balance in dividends but keeping below the upper limits with the rest as pension contributions.
Exactly what I do as well as having a company EV on lease.My wife is a 50% share holder and she gets the same apart from the car.
Whistle said:
Exactly what I do as well as having a company EV on lease.
My wife is a 50% share holder and she gets the same apart from the car.
Is your wife a director? If so, you can claim Employers Allowance and increase the salary to be more tax efficient. If she isn't, she probably should be...My wife is a 50% share holder and she gets the same apart from the car.
STURBO said:
Hi,
Can I please check my maths and understanding is right, given recent tax changes.
It used to be the case that there was a saving paying company profits as dividends rather than salary.
I don't think that is true anymore.
My basic maths, for a £1000 of company profit. Assuing this slice is in the upper tax bracket, but under 100k:
As Dividend, First pay 25% corporation tax, then 33.75% dividend tax. Left with £496 in pocket.
As Salary, First pay Employers NI 13.8% then 42% Income tax plus NI. Left with £499 in pocket.
Am I missing something? Other than maxing out pensions from company funds, which seems a no brainer now.
Thanks
One size doesn't fit all. You should speak to your accountant to take into account your personal/business situation in its entirety.Can I please check my maths and understanding is right, given recent tax changes.
It used to be the case that there was a saving paying company profits as dividends rather than salary.
I don't think that is true anymore.
My basic maths, for a £1000 of company profit. Assuing this slice is in the upper tax bracket, but under 100k:
As Dividend, First pay 25% corporation tax, then 33.75% dividend tax. Left with £496 in pocket.
As Salary, First pay Employers NI 13.8% then 42% Income tax plus NI. Left with £499 in pocket.
Am I missing something? Other than maxing out pensions from company funds, which seems a no brainer now.
Thanks
springfan62 said:
You want to be just above the NI threshold in salary(£12570 Per annum) so you get a year of State Pension added.
That’s not correct and I think the £12,570 is only better for a two director set up. For a single director £9,100 is still best but there isn’t loads in it.trickywoo said:
That’s not correct and I think the £12,570 is only better for a two director set up. For a single director £9,100 is still best but there isn’t loads in it.
It’s definitely better, recommended by my accountant and I double checked it. The changes in employee NI made the difference. Can anyone tell me when the employer NI contributions start to become due?
Is it straight away or is there a buffer.
Reason for asking is that I've just used the HMRC Basic PAYE Tools app to pay myself £1,047.50.
All submitted and went into the calculation section and it is showing nil NIC due. I haven't applied for any allowances so was expecting to pay 13.8% on the difference between £758 and £1,048 - £40.02 but nothing is showing as due.
Any help appreciated.
Just to add I put the payment date as the 26th April as it asks to submit the info before the payment - could be this but I would have thought it still calculate the amount due. Its showing the £1,047.50 as due for NIC but no amount to be paid is showing.
Is it straight away or is there a buffer.
Reason for asking is that I've just used the HMRC Basic PAYE Tools app to pay myself £1,047.50.
All submitted and went into the calculation section and it is showing nil NIC due. I haven't applied for any allowances so was expecting to pay 13.8% on the difference between £758 and £1,048 - £40.02 but nothing is showing as due.
Any help appreciated.
Just to add I put the payment date as the 26th April as it asks to submit the info before the payment - could be this but I would have thought it still calculate the amount due. Its showing the £1,047.50 as due for NIC but no amount to be paid is showing.
Edited by trickywoo on Wednesday 24th April 11:21
Eric Mc said:
If you are a director, NI becomes payable when your accumulated salary breaches the threshold for EMPLOYER'S NI. This is currently £9,100.
Thanks Eric - much appreciated.Just for anyone else thinking of using the HMRC payroll app, it actually seems OK so far.
I would say start with registering early as although the company has been PAYE registered for years and I have a personal tax account and business VAT within that you need a separate business HMRC account for PAYE. It says two days in the online form but it took me a total of over three weeks. As I waited two weeks for them to send out a postal activation code and then 10 days for that to arrive.
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