01243 531071 [email protected]

We often get asked by business owners what is the most tax efficient way to get money out of a limited company. There are many factors to consider. For example, are you a basic rate taxpayer? Do you have other sources of income? Are you trying to get a mortgage?

For 2021/22, a basic rate taxpayer with no other income will be better off taking a salary equal to £9,568 (£797 per month) then topping up with dividends. £9,568 is the point at which National Insurance of 12% kicks in.

However, if you are looking to get a mortgage, many lenders will not take dividends into account when assessing your income. So you may wish to take a larger salary and smaller dividends in the knowledge that you will incur more tax.

Examples:

  1. Salary of £1,500 per month

Annual salary £18,000

PAYE £1,086

E’ee NI £1,012

E’er NI £1,293

TOTAL TAX £3,391

  1. Dividends of £1,500 per month

Annual dividends £18,000

£257 personal tax

£3,420 corporation tax

TOTAL TAX £3,677

  1. £797 Salary plus £703 dividends per month

Annual salary £9,564, Annual Dividends £8,436

£257 personal tax

E’er NI £100

£1,603 corporation tax

TOTAL TAX £1,960

Call 01243 531071 or email [email protected] to learn more