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.
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