Salary vs Dividends

Business can reduce their tax liabilities by paying dividends as opposed to salary. This is not always obvious, and only after a thorough review of the business by our team can the right response be gained.
Its all depend on circumstances, the following outlines some of the initial considerations:

  PROS CONS
PAYE Lots of free help available from the Revenue Can be expensive in National Insurance for smaller companies
Tax and National Insurance liabilities are easy to calculate and paid at source Can be used only to pay employees of the company
PAYE lets you utilise your personal allowance and starting rate of tax (10%) where applicable  
Payroll expenses are deductible from the profit chargeable to Corporation Tax  
Dividends No National Insurance Can usually only be paid from accrued profits of the company (although we have been able to overcome this in some circumstances)
More tax efficient in most circumstances  
Can be paid to individuals who are not employees of the company (they must be shareholders)  
  • A review of the remuneration for each shareholder taking into account any other income they have.
  • Identification of the savings available depending upon whether these are received by the shareholders retained by the company or split between them.
  • Guidance on the correct dividend procedures to ensure that they comply with company law so that the legality of the dividends cannot be challenged by HM Revenue and Customs.
  • A review of the effect of the new policy on the company’s corporation tax.
  • An analysis of the effect of the new policy on the shareholders’ self assessment and their tax payments.
  • A review of other considerations such as properly waiving salaries, impact on life policies, impact on pension arrangements etc

Contact a member of the KINGSWAY team to discuss how a dividend strategy could enable you to reduce the amount of tax you pay.