The budget and the small business owner

With the recent budget changes it is now time to plan your salary and dividends for the tax year ended 5 April 2016.

In general terms, if you do not have any income from sources other than your company, the most tax efficient way to remunerate yourself is for the company to pay you a salary of £8,060 per annum and then draw dividends.  Net dividends (the amount that you get in cash from the company) of up to £30,892 will not generate any income tax liabilities.  Dividends of between £30,892 and £82,746 will effectively cost you 25% in income tax.

However, the good news is that the Employer’s National Insurance allowance remains in place for another year. This means that the first £2,000 of Employer’s National Insurance liabilities incurred do not have to be paid to HMRC.  If the only employees of the company are one or two directors, then you can take advantage of this allowance to save you tax.  In those circumstances the director(s) could receive remuneration of £10,600 per annum.  Although this would generate national insurance liabilities of £304, the company would save corporation tax of £508 on the extra £2,540 of salary.  In this case, net dividends of up to £28,606 will not generate any self assessment liabilities and dividends of between £28,606 and £80,460 would generate tax liabilities at 25%.

When your total gross income exceeds £100,000 you will start to lose your personal allowance which will affect the amount of tax due.

Please call David Swann (Customer Manager) on 01733 372681 or email him at: if you would like any help in planning your salary and dividends for the tax year ended 5 April 2016.

Please remember that the above is general advice and may not take your individual circumstances into account.
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