Salary Vs Dividends on company profits

[STURBO]

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

[theboss]

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.

[trickywoo]

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.

[Whistle]

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.

[MaxFromage]

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...

[MaxFromage]

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.

[NickZ24]

If been able then do both, get a job, and do a side hustle.
Sure its harsh, but in 15 Years you have what is needed.

[YouWhat]

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.

That’s not the case anymore, slightly better pay yourself £ 1,047.50 per month.

Edited by YouWhat on Monday 22 April 16:03

[trickywoo]

YouWhat said:

That’s not the case anymore, slightly better pay yourself £ 1,047.50 per month.

Edited by YouWhat on Monday 22 April 16:03

Is that still below the NI threshold?

[springfan62]

You want to be just above the NI threshold in salary(£12570 Per annum) so you get a year of State Pension added.

[trickywoo]

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.

[YouWhat]

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.

[YouWhat]

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.

You only have to be above the lower earnings limit to have deemed to have qualified, £6,396.

[OddCat]

NickZ24 said:

If been able then do both, get a job, and do a side hustle.
Sure its harsh, but in 15 Years you have what is needed.

Ehhhh ???

[STURBO]

Thanks for all the comments.

[trickywoo]

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.

Edited by trickywoo on Wednesday 24th April 11:21

[Eric Mc]

If you are a director, NI becomes payable when your accumulated salary breaches the threshold for EMPLOYER'S NI. This is currently £9,100.

[trickywoo]

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.