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By Nimbus

Salary Increase & £2,000 from HMRC

March 23, 2015 | By |

Another tax year is drawing to a close and it is time to make some adjustments to your salary and dividends.

HMRC are continuing their £2,000 give away for 2015/16. This amount is a credit and can only be offset against employers national insurance contributions. So for the second year running it is more tax efficient to pay yourself a salary up to the personal allowance, which has been raised to £10,600. This pay will attract £304 of employees national insurance contributions over the year. The net tax saving is £203, which is the difference between the employees national insurance contribution payable and the corporation tax saved by having the extra salary. Therefore, as a company director it is more tax efficient to pay yourself a monthly salary of £883.33 and declare a dividend on top.

In order to declare a dividend which keeps you within the basic rate threshold, the net dividends for the year will need to be £28,606 (£2,383 per month). If you decide to pay yourself more dividends, you will be taxed personally at 25% on the net dividend payment.

If you have other employees that will naturally utilise the £2,000 employers national insurance credit, it is advisable to keep the salary to the national insurance primary threshold of £8,060 for the year (£671.67 per month) and the net dividends to £30,892 (£2,574 per month).

Hopefully you will have a good year and your total gross income will get close to £100,000. Be careful at this point as the tax rate is an effective 60% over this amount as a result of the personal allowance being withdrawn at £1 for every £2 of earnings over £100,000. It is advisable to keep your income below this threshold unless completely necessary.

If you want more information on extracting money from your company in a tax efficient manner we are your local Brighton & Hove based accountants, feel free to get in touch