Dividends and Salary for business owners

Dividends and Salary for business owners

It is common practice for business owners to take a salary which is within the National Insurance (“NI”) threshold with the balance being paid as dividends. This continues to be the default approach and is tax efficient for both the business and the individual based on the following:

  • the individual takes a low salary within their personal allowance meaning that it does not attract Income Tax
  • the salary is set just high enough for NI purposes without NI actually becoming payable, a credit is still noted on the NI record. This helps to protect future entitlement to state pension and benefits
  • for the 2021/22 tax year, beginning on 6 April, the threshold salary level is £8,840
  • the salary is a tax-deductible expense for the business. This means that corporation tax is saved at 19% on the gross salary
  • any additional income is paid as a dividend, which does not attract NI meaning the individual is not paying any NI contributions at all
  • the “dividend nil rate band” provides for 0% tax rate on the first £2,000 of dividend income, thereafter the tax rate is 7.5% up to the basic rate band threshold

If you would like more information about how to take your remuneration tax efficiently, or to discuss your tax affairs in general, please do not hesitate to get in touch.

 

Steve Crompton
Partner – Head of Tax
direct dial: 01942 292541
mobile: 07790 840394
email: steve.crompton@jsllp.co.uk
 
Lucy Williams
Tax Partner
direct dial: 01942 292543
mobile: 07807 053494
email: lucy.williams@jsllp.co.uk

 

 

 

 

 


 

 

 

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