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