Deciding how much salary you should take home as a company director isn’t a straightforward task and there are many variables that need to be considered when determining the most suitable remuneration strategy.
The director could take all their take home pay as salary. Alternatively, they could reward themselves by taking all their pay in dividends. Or they could extract income by way of a combination of salary and dividends. Payroll services and tax specialist providers, HWB Accountants would be happy to advise on this.
What are dividends?
A dividend payment is essentially a share of your company’s profits and retained earnings after it has paid corporation tax and expenses.
While dividend payments are still subject to tax, the rate of tax charged against dividends is lower than that applied to PAYE income (8.75% on dividend payments up to the value of £50,270 versus 20% for PAYE earnings).
Plus, dividends aren’t subject to Employer’s NICs like PAYE earnings are.
Why still pay salary?
Unlike dividends salary payments contribute to your state benefit record, for items such as state pension entitlement.
It is also worth noting that salary payments unlike dividends can attract corporation tax relief of up to 25%.
Per the recent Autumn statement, the rates of National Insurance have decreased, which makes this option less expensive.
There is no simple solution in determining what is the best strategy for taking money out of the company. There are many variables that will determine the optimum remuneration strategy which will need to be considered (e.g. what are your other sources of income or can shares be transferred tax free to a spouse).
With that in mind, if you would like to explore your options further or receive help with your company payroll and overall remuneration strategy, the best next step would be to contact a payroll provider and tax specialist such as HWB Accountants.