Something worth considering before the end of the tax year on 5 April 2018!
Directors are able to pay themselves from their limited company in the form of salary or dividends. However, the most tax efficient way typically requires you to use a combination of both.
Salary
In the current tax year the first £11,500 of income is tax free (although subject to some NIC). If your salary is your only form of income, salary earned above £11,550 will be taxed at 20%, increasing to 40% if the salary figure reaches £45,000. This increases to 45% if your salary is over £150,000.
Dividends
The dividend allowance introduced in April 2016 means that the first £5,000 taken by an individual is tax free for the 2017/2018 tax year. From there on dividends in the basic rate tax band are taxed at 7.5%, increasing to 32.5% for higher rate taxpayers, and 38.1% for taxpayers earning over £150,000.
Therefore, if directors ensure they utilise their personal allowance and dividend allowance in the current year, they can receive tax free income of £16,500.
If you would like assistance to ensure you are taking the optimum level of salary and dividend in the most tax efficient way possible, then please contact –
Andy Summers, Rugby on 01788 539000 or Jon Kicks, Leicester on 0116 261 0061