Dividends vs Salary

Dividends vs Salary

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What is the best tax effecient way to deal with dividends and salary in a small company, where majority of the fees earned is going to drawn out as either salary or dividends.Is there an upper dividend limit? Salary would be equal to personal allowances?

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By NDH
05th Jun 2014 16:34

It depends

It can depend on a number of factors, there isn't a one size fits all solution and because of this I honestly believe your best bet is to engage and accountant and seek their professional advice. That way you can give them all the information needed to get advice that is right for your circumstances.

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By andy.partridge
06th Jun 2014 09:55

@ NDH

I think you will find that the OP is an accountant.

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By User deleted
06th Jun 2014 10:27

If the OP is an accountant ...

... then he shouldn't have to ask those questions. But to answer one of them:

Yes, there is an upper limit for dividends - the amount of available reserves.

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RLI
By lionofludesch
06th Jun 2014 11:08

The best solution is always to do the number crunching.

Every case is different.

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Euan's picture
By Euan MacLennan
06th Jun 2014 11:32

New factor for 2014/15

There is a new factor to be considered for 2014/15 - the Employment Allowance under which (most) employers are not required to pay the first £2,000 of employer's NI contributions.  This has increased the most tax-efficient salary (if you regard NI contributions as a tax) in most one-man companies from the NIC threshold to the level of personal allowances.

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By CaptainPlanet
06th Jun 2014 13:41

That is true but

it is only by a very small amount so you have to work out if the extra saving is worth dealing with the payments to HMRC and possibly paying extra fees to produce payslips etc. 

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Replying to Wilson Philips:
By JCresswellTax
06th Jun 2014 14:08

Confused!

CaptainPlanet wrote:

it is only by a very small amount so you have to work out if the extra saving is worth dealing with the payments to HMRC and possibly paying extra fees to produce payslips etc. 

Would you not produce payslips whether there was NIC to pay or not anyway?

OP - if you are an accountant then i'd advise reading a lot of textbooks, going on training course and reading the any answers section of this website.

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By Finansol Tax Calculators
11th Jun 2014 10:59

answers at a click . . .

The 'best' solution depends on the circumstances, and must take into account each client's needs and preferences, tax and non-tax factors.

If you would like to save yourself the time and effort of calculating the precise outcome for every scenario, do try our Incorporation and Profit Extraction Calculator or Salary v Dividends Calculator!

Our Incorporation and Profit Extraction Calculator will calculate a tax efficient salary and maximum dividend for any case, taking full account of the effects of the new employment allowance on this decision. Alternatively, you can try other salary / dividend combinations, to meet your clients' circumstances.

 

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Replying to fiona_howells:
RLI
By lionofludesch
11th Jun 2014 12:19

DIY

Jeez - I'm not sure the number crunching is all that complicated.

And I like to do this stuff myself.  It helps me understand the issues and the marginal tax charges.

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By User deleted
11th Jun 2014 12:12

This question gets asked on the internet every Wednesday I think!!

For a director-owned company, for 2014-15, £10000 is the most tax efficient salary. As for dividends (assuming no other taxable income) the maximum dividend that could be taken out without paying any tax is £31,865 x 90% = £28,678 

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By Steve Kesby
11th Jun 2014 12:15

Every Wednesday...

... there's a one size fits all answer as well.

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By Dan Izzard
11th Jun 2014 16:26

Thread edited

Please keep the original question in mind when posting, any other content including self promotional material may be deleted. Thanks, Dan

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By Imran Sajjad
15th Sep 2014 22:25

salary & dividend

if some one has £50,000+ self employment income then what's the best tax planning? to go for limited co. and get dividend or to get salary + dividend?

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