March 22, 2014 | By Nimbus |
Another tax year is drawing to a close and it is time to give yourself a pay rise. Last year you were probably receiving £641 a month from your company, but this year you can pay yourself £833.
You might ask “why am I paying myself an annual salary of £10,000? That’s the personal allowance limit and I normally only pay myself the national insurance threshold?” Ordinarily any pay over the national insurance threshold would trigger the payment of 12% employees national insurance and 13.8% employers national insurance. However, for 2014/15 HMRC are giving employers £2,000 towards their employers national insurance contributions. So for the time being it is more tax efficient to pay yourself a £10,000 salary (which will attract £245.28 of employees national insurance contributions). The net tax saving is £163, the difference between the employees national insurance and the corporation tax. Therefore as a company director, it is more tax efficient to pay yourself a monthly salary of £833 and declare a dividend on top.
While the personal allowance has increased, the point at which higher rate tax becomes payable has reduced. If you are declaring dividends on a monthly basis and keeping them within the basic rate thresholds, the net dividends will fall to £2,389. So your net payments from the company will total £3,222. If you want to take more dividends, you can, but you will be taxed personally at 25% on the net payment. It might be better to reinvest the money into the business or consider a pension scheme.
Remember these allowances are for each director/shareholder.
If you want more information on extracting money from your company in a tax efficient manner we are your local Brighton & Hove based accountants.