Salary, Bonus or Dividends – Which is the best to pay yourself?

Tax rates change regularly, so it is wise to regularly check whether it will be cheaper for your company to pay a dividend rather than a salary.

Recent changes mean that:

  • The personal tax allowance has increased to £8,105 as have the lower limits for National Insurance bands .
  • To preserve entitlement to state benefits pay a salary between £107 and £144 per week, this also avoids Employers NICs.

If you are paying low salaries and topping the balance up in dividends you will want to optimise your position for 2012/13 by having regard to marginal tax rates.

Marginal tax rates

There are now several points where income exceeds a certain level the marginal extra cost in tax of each £1 over the level is often disproportionately high:

  • £42,476 – liability to higher rate tax (40%)
  • £50,001 to £ 60,000- claw back of child benefits (as applicable) (up to around 58%)
  • £100,001 – claw back of personal allowances (60%)

When planning dividend payments, take these into account.

What are your views?

Ray Best can help you protect your financial future. To find out more, simply click here!

 

About Ray L Best

Ray Best has had over 30 years experience of advising on complex financial matters. A published author of a number of books including “Partnership and Shareholder Protection”, Inheritance Tax Simplified”. We provide an initial meeting at no cost and only engage with clients when we can add significant value.

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