Best choice for a company director

Stephanie
Stephanie Registered Posts: 20 Dedicated contributor ? ? ?
Hello,
Please I would like someone to help with some advice.
I have got a customer who is a company director, she asking me about her best way to take money off the company (Salaries or Dividend).

I have got this 2 ideas and I would like someone to guide me about which one would be better for my
client.
1) As an employee, she could get herself a pay of £624 per month (NI Threshold)
current income tax rates go as high as 50 per cent for additional rate taxpayers, whereas your company’s profits are currently only taxed at 20 per cent.

2)Shareholders in the company can draw a dividend – their part of the profits. You may have to pay income tax on that dividend, but overall you might be slightly better off as you won’t have to pay National Insurance contributions on it.

Please your input will be much appreciated.

Comments

  • Monsoon
    Monsoon FMAAT, AAT Licensed Accountant Posts: 4,071 ? ? ?
    This is standard tax planning.

    You're right - assuming sole director/shareholder company, and that it is his only source of income:

    director's salary to NI threshold
    Dividends after that.
  • Stephanie
    Stephanie Registered Posts: 20 Dedicated contributor ? ? ?
    Thank you Monsoon for your kind reply.
  • Blonde Accountant
    Blonde Accountant Registered Posts: 86 Regular contributor ⭐ ? ⭐
    Sorry Stephanie, I hope you don't mind me hijacking your thread, it's just your question is almost what I wanted to ask.

    I do the book-keeping for a small ltd co and currently the 2 directors each take a decent salary (approx £2500 gross per month). The company has just started making a profit and they now want to take a dividend instead of a pay rise. How and when do you pay the tax due on the dividend. If for example, they each took an extra £250 per month as a dividend, when would they pay the tax due on this? Would they declare it on personal tax returns?

    Many thanks for taking the time to read and any help appreciated.

    Nicola
    :001_smile:
  • Blonde Accountant
    Blonde Accountant Registered Posts: 86 Regular contributor ⭐ ? ⭐
    Hi, does anybody have any ideas-please? I do the book-keeping for a small ltd co and currently the 2 directors each take a decent salary (approx £2500 gross per month). The company has just started making a profit and they now want to take a dividend instead of a pay rise. How and when do you pay the tax due on the dividend. If for example, they each took an extra £250 per month as a dividend, when would they pay the tax due on this? Would they declare it on personal tax returns?

    Thanks

    Nicola

    :001_smile:
  • MarieNoelle
    MarieNoelle Moderator, MAAT, AAT Licensed Accountant Posts: 1,369
    Hi Nicola,
    yes, the dividends will have to be declared on the self-assessment tax return - depending on their income they will have to pay the tax if any on 31st january and payments on account on 31st July.
    MN
  • Blonde Accountant
    Blonde Accountant Registered Posts: 86 Regular contributor ⭐ ? ⭐
    Hi Marie,

    Thank you very much-that is most helpful.:001_smile:
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