Probably the most important post of the year for limited company directors!
Question: What’s the most tax efficient salary and dividend mix for the 2017/18 tax year?
An owner managed limited company will usually pay their directors / shareholders with a mix of salary and dividends.
The level of the director’s salary is usually set in order to avoid any income tax and national insurance. On this basis the recommended remuneration package for 2017/18 is:
Upper limits for 2017/18
Salary – per annum: £8,164 (last year £8,060)
Salary – per month: £680 (last year £671)
Dividend – per annum: £36,836 (last year £34,940)
Dividend – per month: £3,069 (last year £2,911)
It should be noted that since the introduction of the dividend ordinary tax rate of 7.5% on dividends over £5,000 there will be a personal tax bill of £2,138 (last year £2,025) if dividends are paid all the way up to the basic rate limit of £45,000 (last year £43,000).
For those companies that also have non-director employees on the payroll then they will continue to benefit from the Employment Allowance which reduces the company’s Class 1 National Insurance contributions (Employer’s N.I.) by up to £3,000.
In such cases there may be an opportunity for directors to eke out a little more tax savings by paying themselves a salary of £11,500 and dividends up to a maximum of £33,500 (the overall tax saving between the director and the company being around £234).
This second option will not be the best fit for everyone. More that ever, personal circumstances must be carefully considered to give the best results.
Each client of Massey Accounting Company will be receiving a personalised recommendation shortly.
Enjoy saving tax?