Current optimal profit extraction

With recent changes in the last year, it appears a salary could be far more efficient

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With the changes over the couple of years:

- Increases of dividend rates by 1.25% (which, I think, rather insidiously, were not reversed when the plans for the Health and Social Care Levy were reversed)

- Increase to the corporation tax rate

- Reduction in the NIC to 10%

It appears that a salary will now be more efficient at a surprisingly low level. I have come to a figure just below £120k in profits where (on full extraction), a full salary would be more efficient than a dividend extraction. 


Does this tie in with anyone else's findings? As a sole practitioner, it is not always easy to have someone check my workings. Normally I can find relevant advice online, but I was surprised to find an example here from Shipleys where their level was £521,000 (admittedly, dated before the NIC reduction, but that won't have that big an impact):


As an aside, it would certainly be much more efficient from a tax perspective to operate as a sole trade, partnership or LLP these days, but disincorporation would present many issues too.


And, yes, of course, each company should be looked at in a case by case, but I like to check these things more generally when rates changes.

Replies (2)

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By SXGuy
08th Dec 2023 12:44

I think there was a thread on this a few weeks ago and it was agreed that the benefit of salary vs divs fluctuated depending on numbers but over 100ishk it became clearer which was better.

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Replying to SXGuy:
By Davemaverick
08th Dec 2023 15:06


Think I found the one you mean ( with another thread in that.

However, my query was more for salary vs dividend, as opposed to company vs sole trade.

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