Date posted: 15th May 2023
It is the “norm” that limited company owner managed business owners will usually draw a minimal salary (to get the national insurance credit) and dividends to meet their income requirements.
However, is this still correct from a tax and commercial perspective, given the recent changes in corporate tax rates, dividend tax rates and allowances?
The tax answer is usually it depends!
It depends upon how much income you require, whether the company has reserves, at what rate the company pays tax, whether the company has unrelieved losses, whether the company undertakes R&D, whether the package will be regarded as market rate, whether there are other shareholders and so forth.
A very basic comparison, keeping the cost to the company the same and assuming a flat 25% rate of corporate tax (and no R&D), then at the “lower levels” of income (below say £200,000) then there is circa £4,000 to be saved by taking a small salary and dividend package – sadly nothing like the savings in the halcyon days of circa 2005-2016.
However, as income starts to increase the savings tend to diminish and start to turn in favour of a higher salary package above £525,000
In terms of a commercial perspective, Lee Watson’s blog, went into this in more detail – given the diminished tax savings, is it time to switch if there is a nervousness about the future?
As always, we are here to advise you on the best route forward for your own circumstances. Contact us here.
