In this blog post you will find recommendations for taking a dividend and salary from your limited company. Every business owner is different. The ideas offered are generic, however to discuss your specific circumstance contact us.
How much salary must you pay?
This year the Government have abolished the employment allowance for sole director limited companies.
Below is an option available this year:
There has been no change in NI limits forthe 2016/17 tax year. The basic salary remains the same.
So from April 2016 a salary of £671 / month is payable without having to pay any tax or NI.
If you choose this option you:
• You are not entitled to National Insurance Credits, which can go towards benefits such as a state pension.
• You have to be a registered employer
• You have to file a RTI return each pay period. If you fail to do so on time there are fines.
Dividends are a tricky subject the will be broken down in future blog posts. So follow us if you are interested to know more.
For a start..
Dividend pay over £5,000 is liable to dividend tax.
The rates of tax for 2016 is:
• First £5,000- tax free
• Dividends within basic rate: tax 7.5%
• Dividends within higher rate tax - 32.5%
• Dividends within the additional rate of tax - 38.1
This information is given with the assumption you have no other income.
For £27,000 of income you will pay tax at 7.5%.
So you can take
• a salary of £8,052
• dividends of £7,948 + £27,000 = £34,948
• Total income of £43,000
• Dividend tax of £27,000 x 7.5% = £2,025
Go through whatever salary-dividend structure you choose with an experienced accountant, to be sure the you have chosen the best one for you and to avoid mistakes that can lead to hefty fines.