11th August 2023Should You Pay Yourself a Salary or Dividends?

If you are a director of a limited company, you usually have the option of paying yourself a salary or dividends.

Until recently generally there was a clear answer: pay yourself a salary up to the National Insurance contributions lower earnings limit and the rest would be paid as dividends. This would give you the best position from both a company and a personal tax point of view.

However, Charles Nops, Manager in the Private Client Department, explains how recent changes to Corporation and Dividend tax rates mean that the answer is no longer clear cut. Now it all depends on your individual circumstances.

The scenarios that will change the position include:

  • What tax bracket will you fall into (basic, higher or additional rate)
  • Whether the company will be paying 19% or 25% Corporation Tax
  • If you are over the State Pension age
  • If you already earn over income from other sources
  • If there is more than one shareholder

There are other non-tax related circumstances that you will need to consider:

  • Your business’s profits: If your business is not profitable, then you may not be able to pay yourself either a salary or dividends.
  • Cashflow: If you pay yourself a dividend, you do not have to pay the tax until the 31 January following the end of the tax year. Given the current climate, you could utilise the personal tax funds to receive a passive source of income.

You may also want to consider the benefits of operating self-employed/via a partnership, as these may be more effective.

If you would like to discuss specific circumstances, please get in touch.

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Daniel Tomassen
Director - Private Client

+44 (0)20 7874 7883
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