Looking at identifying the best split of salary and dividends from a tax perspective: select the best title that applies to you?
Sole director/employee of the business and want no admin headaches?
If you’re a sole director in the business with no other employees, and you want a tax effective strategy with no headaches, then you will want to choose the revised secondary threshold which is £9,100 per year (£758.33 pcm).
Anything you earn over £6,396 means you will be considered that you are contributing towards your state pension, even though you are not paying any National Insurance contributions.
This means you will not pay any employee or employee national insurance contributions.
One director, happy with a little admin, but want the most tax effective route?
If you’re a sole director in the business, and you don’t mind making an extra payment each month for April – July, then pop yourself on a salary of £11,908 per annum (£992.33 pcm).
This means you’ll be paying a small amount of National Insurance contributions in April, May and June, and reclaim this back in future months.
Fully utilised the employment allowance and already paying a National Insurance bill each month.
If you employ others, then you’re already paying monthly/quarterly your PAYE and National Insurance contributions, so claim a salary of £11,908 per annum (£992.33 pcm), there is no extra work to be done!
At least two people employed in the business, not utilising the full employment allowance?
Where you have more than one employee, you may be eligible for the employment allowance which has just been raised to £5,000 per year. This means that Employer’s will not have to contribute the National Insurance until it reaches over this balance.
Therefore where this is the case directors may want to pay themselves £12,570 (£1,047.50 pcm). Rishi’s latest announcements will now mean that they do not need to pay any employees national insurance, and the employers contributions will be covered by the employment allowance.
Generic advice doesn’t beat tailored advice
Clearly this does not take into account any other income you may have and assumes that you are looking at the most basic split of salary and dividends.
Please also note that if you have a contract, not many directors will, then you will need to consider National Minimum Wage.
Read our Bev’s tips on extraction here, and get in touch with our Bev to explore the best way to remunerate yourself and extract money from your business.