Tax efficient remuneration small limited company

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Apologies if this is already elsewhere but I could not find anything about it.

Trying to work out the most tax efficient way for a single director Ltd company owner to draw profit. 
He has one member of staff on £12k so qualifies for the Ers allowance and his company profit is usually around £75k per year (before any rem.)

would you agree that it's best to take a larger salary now that the 8% NI rate kicked in vs min. Salary and the rest dividends?

say £40k salary and the balance in dividends because it's 28% vs 27.75% but it keeps the company profit at 19% CT

am I missing anything as I can't see anything online talking about a general change of tact for companies with this level of profits

thanks in advance

Replies (6)

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By Paul Crowley
19th May 2024 00:02

Ignoring higher rate tax, EENIC is 8% on the full amount, Dividend tax is 8.75% on the after Corp tax amount.
No idea why you are picking a figure to be give a profit below the 50K limit for CT.
A bonus can be declared at year end and be paid within 9 months to be tax deductible.

This is a calculation the accountant can make for you, taking into account the full circumstances. Best to trust him over a group of random dudes with no skin in the game, as clearly your suggestion would not be his advice.

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Replying to Paul Crowley:
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By I'msorryIhaven'taclue
19th May 2024 09:39

Paul Crowley wrote:

Ignoring higher rate tax, EENIC is 8% on the full amount, Dividend tax is 8.75% on the after Corp tax amount.

To put some figures on what Paul is telling you, the top-slice (ie after you've used up your £12,570 PA and your £500 div allowance) overall saving by taking divs rather than salary for a basic rate taxpayer in a company with sub-£50k taxable profits that qualifies for EA is around 1.9% viz:

Salary

Profits £1,000

salary £1,000

Taxable profits £0

Tax yield (20% IT & 8% NI) £280

Money in director's pocket £720

Divs

Profits £1,000

salary £0

Taxable profits £1,000

Corporation tax £190

Divs £810

Tax on divs (@8.75%) £70.88

Tax yield (£190 + £70.88) £260.88

Money in director's pocket £739.12

A saving of £19.12 (or 1.91%). What would Touker Suleyman say to that?

That's the starting point. OP, if your CT profits rise above £50k (as a result of your taking too much in divs) then your company will be paying 26.5% CT rate. Separately, when you personally hit the higher rate 40% tax band then you have to work out the same calcs as above, but with different rates, for your higher rate portion.

Yesterday I had a nail in my tyre. I drove to a tyre garage and had it plugged for £20. Why would I try to DIY that!

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By Jpbuckley8
19th May 2024 07:46

Thanks I have pretty consistent profit year to year so was just trying to work out how much I can draw monthly without causing myself a problem

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By Matrix
19th May 2024 10:18

You have to do bespoke calculations but I agree that higher salary can now be optimal. It depends if you are extracting all profits or trying to keep within the £50k or now £60k thresholds. The dividends route allows you to extract the max in my view.

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DougScott
By Dougscott
19th May 2024 12:37

[quote=Jpbuckley8]
He has one member of staff

Is the "he" you by any chance? You really should ask your accountant as they will be aware of your individual circumstances. There is no one size fits all.

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Replying to Dougscott:
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By FactChecker
19th May 2024 17:46

My assumption too ...

"He has one member of staff on £12k so qualifies for the Ers allowance".
There's not much point in going to all that bother to hire an employee (spouse, child or whoever) unless the company's total secondary NIC liabilities are large enough to consume most if not all of the EA.

OP: You don't *receive* the 'allowance' (it is merely used to reduce how much the company has to pay in secondary NICs - up to the capped maximum).

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