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Optimal salary and dividends for the new tax year

The Word TAX in Red Boxes
hmrc

From the start of the 2014/15 tax yearthe basic personal allowance is £10,000 for 2014/15 and the higher rate threshold (the sum of the basic personal allowance and the basic rate limit) is £41,865. In addition, if you are an eligible employer, you can claim £2,000 against your employers’ NI bill in 2014/15. So what does this mean for the most tax-efficient remuneration package for a director shareholder?

 

Tip 1. For a director shareholder, it’s usually most tax-efficient to take a minimum salary with the rest as dividends. In this case, if the only employees in your company are director shareholders (this works for up to seven director shareholders in a company), then the most tax-efficient salary to take is likely to be £833.33 per month (£10,000 per year). Assuming this is your only employment, there will be no tax to pay as the salary will be covered by the personal allowance. They will pay some primary Class 1 (employees’) NI on this at 12% but the secondary Class 1 (employers’) NI will be offset against the employment allowance, so the corporation tax saving of 20% will more than compensate for the employees’ NI bill.

 

Tip 2. If you take a salary of £833.33 per month, you can pay yourself dividends of £28,678 for the year to 5 April 2015 without paying higher rate tax (assuming you have no other taxable income).

 

In summary, assuming you have no other and your company is eligible for the £2000 employment allowance, the optimal salary to take would be £833.33 a month with dividends of up to £28,678 for the year to 5 April 2015.